UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

x Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the fiscal year ended December 31, 2013

or

¨ Transitional Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 333-165972

INTERNET MEDIA SERVICES, INC.
(Exact name of Registrant as specified in its charter)

Delaware
22-3956444
(State of incorporation)
(IRS Employer Identification Number)

1507 7th Street, #425
Santa Monica, California 90401
(Address of principal executive office)

(800) 467-1496
(Registrant’s telephone number)

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act: None

 
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act
Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes ¨ No x

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
Yes x   No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
 
          Large Accelerated Filer ¨        Accelerated Filer ¨     Non-Accelerated Filer    ¨   Smaller Reporting Company x
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).Yes ¨ No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently computed second fiscal quarter was $150,441 based upon price of such common stock was last sold on June 28, 2013.
 
As of April 7, 2014, there were 1,353,068,182 shares of Common Stock of Internet Media Services, Inc. outstanding.
 

 
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INTERNET MEDIA SERVICES, INC.
Table of Contents

PART I
 
ITEM 1.
BUSINESS
 
3
ITEM 1A.
RISK FACTORS
 
4
ITEM 1B.
UNRESOLVED STAFF COMMENTS
 
11
ITEM 2.
PROPERTIES
 
12
ITEM 3.
LEGAL PROCEEDINGS
 
12
ITEM 4.
MINE SAFETY DISCLOSURES
 
12
       
PART II
       
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED  STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
13
ITEM 6.
SELECTED FINAINCIAL INFORMATION
 
16
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS
 
16
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
20
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
21
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE
 
21
ITEM 9A.
CONTROLS AND PROCEDURES
 
21
ITEM 9B.
OTHER INFORMATION
 
21
       
PART III
       
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
22
ITEM 11.
EXECUTIVE COMPENSATION
 
23
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
25
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND  DIRECTOR INDEPENDENCE
 
25
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
 
26
       
 
PART IV
   
       
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
27
 
SIGNATURES
 
44


 
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PART I

ITEM 1 - BUSINESS

Overview

 Internet Media Services, Inc. was incorporated in March 2007 as a Delaware corporation and herein we refer to the company as “we”, “us”, the “Company” or “IMS.”  We conduct our operations in Santa Monica, California and through March 13, 2013 used an independent warehouse and product fulfillment center in Western New York state.  Our corporate office is located at 1507 7 th Street, #425, Santa Monica, CA 90401 and our telephone number is (800) 467-1496. Our corporate website address is www.internetmediaservices.com.   Information contained on our websites is not a part of this annual report.

Forward Looking Information
 
This report contains statements about future events and expectations that are characterized as “forward-looking statements.”  Forward-looking statements are based upon management’s beliefs, assumptions, and expectations.  Forward-looking statements involve risks and uncertainties that may cause our actual results, performance, and financial condition to be materially different from the expectations of future results, performance, and financial condition we express or imply in such forward-looking statements.  You are cautioned not to put undue reliance on forward-looking statements.  We disclaim any intent or obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Business Developments

On January 7, 2014, we entered into an Exchange of Securities Agreement (“Agreement”) by and between ourselves, U-Vend Canada, Inc. and the shareholders of U-Vend Canada, Inc.   U-Vend Canada, Inc. together with its wholly owned subsidiary, U-Vend USA LLC (collectively, “U-Vend”), is in the business of developing, marketing and distributing co-branded self-serve electronic kiosks, mall/airport co-branding islands, and digital advertising solutions throughout North America.  As of December 31, 2013 U-Vend owned and operated 33 kiosks in the greater Chicago, IL area and markets products supplied by its co-branding partners. The Company expects to place an additional 15 kiosks into service in the greater Chicago, IL early in the second quarter of 2014. Pursuant to the Agreement, we have acquired all of the outstanding shares of U-Vend in exchange for 466,666,667 shares of our common stock.  Certain shareholders of U-Vend Canada, Inc. will also have the ability to earn up to an additional 603,046,666 shares of our common stock subject to certain earn-out provisions more fully described in the Agreement.  The Agreement was approved by a written consent by the majority of the Company's stockholders and by the Company’s Board of Directors (see Subsequent Events Note 10 to the Company’s consolidated financial statements).

On October 8, 2009, we completed an acquisition in the legal vertical market through the purchase of the assets and assumption of certain liabilities of LegalStore.com.  LegalStore.com is an Internet based company that primarily sells legal supplies and legal forms.   Despite sustained efforts from 2009 through 2012 to bring to market our customer relationship solutions product offerings, we were unable to secure the needed funding.  As a result, in early 2013 we elected to change the strategic direction of the Company.  On March 13, 2013, the Company entered into a stock sale agreement with Western Principal Partners LLC (“WPP”), a California Limited Liability Company. Pursuant to the Agreement, WPP purchased from the Company all the outstanding capital stock of the Company’s wholly-owned subsidiary, LegalStore.com, a Delaware Corporation. LegalStore.com was operating the Company’s e-commerce business.  The Agreement was approved by a written consent by the majority of the Company's stockholders.  In consideration of the sale, WPP agreed to pay to the Company total consideration of $210,000 including assumption of operating liabilities. Operating liabilities included, but are not limited to existing operating agreements, trade payables and certain tax obligations. The fair value of consideration received for the stock of LegalStore.com was less than the carrying value of the assets. As a result, an impairment charge was recorded as of December 31, 2012 in the amount of approximately $35,000, net of income tax effect (see Discontinued Operations Note 2 to the Company’s consolidated financial statements).
  
Employees
 
As of December 31, 2013, we had one full-time employee, one part-time employee, and two contracted positions.  None of our employees are subject to collective bargaining agreements.  

Websites

We maintain one active website, www.internetmediaservices.com which serves as our corporate website and contains information about our company and business.  The Company owns over 12 domain names for future use or for strategic competitive reasons.

 
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Available Information
 
Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is required to file annual, quarterly and current reports with the SEC.  You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549.  Please call the SEC at 1-800-SEC-0330 for further information about the public reference room.  The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The Company files electronically with the SEC.  The SEC makes available, free of charge, through the SEC Internet web site, the Company’s filings on Forms 10-K, 10-Q and 8-K, and amendments to those reports, as soon as reasonably practicable after they are filed with the SEC.

ITEM 1A – RISK FACTORS

An investment in our securities is subject to numerous risks, including the Risk Factors described below. Our business, operating results or financial condition could be materially adversely affected by any of the following risks.  The risks described below are not the only ones we face. Additional risks we are not presently aware of or that we currently believe are immaterial may also materially affect our business. In such case, we may not be able to proceed with our planned operations and your investment may be lost entirely. The trading price of our common stock could decline due to any of these risks.  In assessing these risks, you should also refer to the other information contained or incorporated by reference in this Form 10-K, including our financial statements.  An investment in our securities should only be acquired by persons who can afford to lose their entire investment without adversely affecting their standard of living or financial security.

We have a limited operating history and may not be able to achieve financial or operational success.
 
We were founded in March 2007, initiated our first operating business in October 2009, exited from our first operating business in March 2013, and acquired our most recent operating business in January 2014.  We have a limited operating history with respect to this or any newly acquired business.  As a result, we may not be able to achieve sustained financial or operational success, given the risks, uncertainties, expenses, delays and difficulties associated with an early-stage business in an evolving market.

Our growth strategy includes acquisitions that entail significant execution, integration and operational risks.
 
We are pursuing a growth strategy based in part on acquisitions, with the objective of creating a combined company that we believe can achieve increased cost savings and operating efficiencies through economies of scale especially in the integration of administrative services.  We will seek to make additional acquisitions in the future to increase our revenue.
 
This growth strategy involves significant risks. There is significant competition for acquisition targets in our markets. Consequently, we may not be able to identify suitable acquisitions or may have difficulty finding attractive businesses for acquisition at reasonable prices. If we are unable to identify future acquisition opportunities, reach agreement with such third parties or obtain the financing necessary to make such acquisitions, we could lose market share to competitors who are able to make such acquisitions. This loss of market share could negatively impact our business, revenues and future growth.
 
We may be unable to achieve benefits from any acquisitions.

Even if we are able to complete acquisitions, we may be unable to achieve the anticipated benefits of a particular acquisition, the anticipated benefits may take longer to realize than expected, or we may incur greater costs than expected in attempting to achieve anticipated benefits.
 
Any acquisition we make exposes us to risks.
 
Any acquisition we make carries risks which could result in an adverse effect on our financial condition.  These risks include:
 
 
diversion of our attention from normal daily operations of our vending business to acquiring and assimilating new businesses;
 
 
the use of substantial portions of any cash we have available;
 
 
failure to understand the needs and behaviors of users for a newly acquired business or other product;
 
 
redundancy or overlap between existing products and services, on the one hand, and acquired products and services, on the other hand;
 
 
difficulty assimilating operations, technologies, products and policies of acquired businesses; and
 
 
assuming liabilities, including unknown and contingent liabilities, of acquired businesses.
 
 
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If we are unable to develop and market new product offerings or fail to predict or respond to emerging trends, our revenue and any profitability will suffer.
 
Our future success will depend in part on our ability to modify or enhance our product offerings marketed through our vending kiosks to meet user’s demands.  If we are unable to predict preferences or industry changes, or if we are unable to modify our product offerings in a timely manner, we may lose revenue. New products may be dependent upon our ability to enter into new relationship with suppliers, which we may not be able to obtain in a timely manner, upon terms acceptable to us, or at all. We spend significant resources developing and enhancing our product offerings. However, new or enhanced product offerings may not be accepted by users. If we are unable to successfully source and market new product offerings in a timely and cost-effective manner, our revenue and any profitability will suffer.

If we fail to develop and diversify product offerings, we could lose market share.
 
The market for selling products through vending kiosks has a low barrier to entry which creates a high level of competition.  To remain competitive, we must continue to find, market, and sell new products through our vending kiosks.  The time, expense and effort associated with such development may be greater than anticipated, and any products actually introduced by us may not achieve consumer acceptance. Furthermore, our efforts to meet changing customer needs may require the development or licensing of products at great expense. If we are unable to develop and bring to market additional products, we could lose market share to competitors, which could negatively impact our business, revenues and future growth.

The increased security risks of online advertising and e-commerce may cause us to incur significant expenses and may negatively impact our credibility and business.
 
A significant prerequisite of online commerce, advertising, and communications is the secure transmission of confidential information over public networks. Concerns over the security of transactions conducted on the Internet, consumer identity theft and user privacy have been significant barriers to growth in consumer use of the Internet, online advertising, and e-commerce. A significant portion of our sales is billed directly to our customers’ credit card accounts. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of confidential information. Encryption technology scrambles information being transmitted through a channel of communication to help ensure that the channel is secure even when the underlying system and network infrastructure may not be secure. Authentication technologies, the simplest example of which is a password, help to ensure that an individual user is who he or she claims to be by “authenticating” or validating the individual’s identity and controlling that individual’s access to resources. Despite our implementation of security measures, however, our computer systems may be potentially susceptible to electronic or physical computer break-ins, viruses and other disruptive harms and security breaches. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may specifically compromise our security measures. Any perceived or actual unauthorized disclosure of personally identifiable information regarding website visitors, whether through breach of our network by an unauthorized party, employee theft or misuse, or otherwise, could harm our reputation and brands, substantially impair our ability to attract and retain our audiences, or subject us to claims or litigation arising from damages suffered by consumers, and thereby harm our business and operating results. If consumers experience identity theft after using any of our websites, we may be exposed to liability, adverse publicity and damage to our reputation. To the extent that identity theft gives rise to reluctance to use our websites or a decline in consumer confidence in financial transactions over the Internet, our businesses could be adversely affected. Alleged or actual breaches of the network of one of our business partners or competitors whom consumers associate with us could also harm our reputation and brands. In addition, we could incur significant costs in complying with the multitude of state, federal and foreign laws regarding the unauthorized disclosure of personal information. For example, California law requires companies that maintain data on California residents to inform individuals of any security breaches that result in their personal information being stolen. Because our success depends on the acceptance of online services and e-commerce, we may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. Internet fraud has been increasing over the past few years, and fraudulent online transactions, should they continue to increase in prevalence, could also adversely affect the customer experience and therefore our business, operating results and financial condition.
 
We depend on key management, product management, technical and marketing personnel for continued success.
 
Our success and future growth depend, to a significant degree, on the skills and continued services of our management team, including Paul Neelin, our Chief Operations Officer and Raymond Meyers, our Chief Executive Officer.  Our ongoing success also depends on our ability to identify, hire and retain skilled and qualified technical and marketing personnel in a highly competitive employment market.  As we develop and acquire new products and services, we will need to hire additional employees.  Our inability to attract and retain well-qualified managerial, technical and sales and marketing personnel may have a negative effect on our business, operating results and financial condition.

 
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We may be required to seek additional funding, and such funding may not be available on acceptable terms or at all.
 
We may need to obtain additional funding due to a number of factors beyond our expectations or control, including a shortfall in revenue, increased expenses, increased need for working capital due to growth, increased investment in capital equipment or the acquisition of businesses, services or technologies. If we do need to obtain funding, it may not be available on acceptable terms or at all. If we are unable to obtain sufficient funding, our business would be harmed. Even if we were able to find outside funding sources, we might be required to issue securities in a transaction that could be highly dilutive to our investors or we may be required to issue securities with greater rights than the securities we have outstanding today. We may also be required to take other actions that could lessen the value of our common stock, including borrowing money on terms that are not favorable to us. If we are unable to generate or raise capital that is sufficient to fund our operations, we may be required to curtail operations, reduce our services, defer or cancel expansion or acquisition plans or cease operations in certain jurisdictions or completely.
 
The termination, non-renewal or renegotiation on materially adverse terms of our contracts or relationships with one or more of our significant host locations, product suppliers and partners could seriously harm our business, financial condition and results of operations.
 
The success of our business depends in large part on our ability to maintain contractual relationships with our host locations in profitable locations.  Our typical host location agreement ranges from one to three years and automatically renews until we or the retailer gives notice of termination.  Certain contract provisions with our host locations vary, including product and service offerings, the commission fees we are committed to pay each host location, and the ability to cancel the contract upon notice after a certain period of time. We strive to provide direct and indirect benefits to our host locations that are superior to, or competitive with, other providers or systems or alternative uses of the floor space that our kiosks occupy. If we are unable to provide our retailers with adequate benefits, we may be unable to maintain or renew our contractual relationships on acceptable terms, causing our business, financial condition and results of operations to suffer.

If we cannot execute on our strategy and offer new automated retail products and services.
 
Our strategy is based upon leveraging our core competencies in the automated retail space to provide the consumer with convenience and value and to help retailers drive incremental traffic and revenue. To be competitive, we need to develop, or otherwise provide, new product and service offerings that are accepted by the market and establish third-party relationships necessary to develop and commercialize such product and service offerings. We are exploring new businesses to enter, and new products and services to offer, however, the complexities and structures of these new businesses could create conflicting priorities, constrain limited resources, and negatively impact our core businesses. We may use our financial resources and managements’ time and focus to invest in other companies offering automated retail services, or we may seek to grow businesses organically, or we may seek to offer new products on our current kiosks.  We may enter into joint ventures through which we may expand our product offerings.  Any new business opportunity also may have its own unique risks related to operations, finances, intellectual property, technology, legal and regulatory issues, corporate governance or other challenges, for which we may have limited or no prior experience. In addition, if we fail to timely establish or maintain relationships with significant retailers and suppliers, we may not be able to provide our consumers with desirable new products and services. Further, in order to develop and commercialize certain new products and services, we will need to create new kiosks or enhance the capabilities of our current kiosks, as well as adapt our related networks and systems through appropriate technological solutions, and establish market acceptance of such products or services. We cannot assure you that new products or services that we provide will be successful or profitable.
 
Failure to adequately comply with information security policies or to safeguard against breaches of such policies could adversely affect our operations and could damage our business, reputation, financial position and results of operations.
 
As our business expands to provide new products and services, we are increasing the amount of consumer data that we collect, transfer and retain as part of our business. These activities are subject to laws and regulations, as well as industry standards, in the United States and other jurisdictions in which our products and services are available. These requirements, which often differ materially and sometimes conflict among the many jurisdictions in which we operate, are designed to protect the privacy of consumers’ personal information and to prevent that information from being inappropriately used or disclosed. We maintain and review technical and operational safeguards designed to protect this information and generally require third party vendors and others with whom we work to do so as well. However, despite those safeguards, it is possible that hackers, employees acting contrary to our policies, third-party agents or others could improperly access relevant systems or improperly obtain or disclose data about our consumers, or that we may be determined not to be in compliance with applicable legal requirements and industry standards for data security, such as the Payment Card Industry guidelines. A breach or purported breach of relevant security policies that compromises consumer data or determination of non-compliance with applicable legal requirements or industry standards for data security could expose us to regulatory enforcement actions, card association or other monetary fines or sanctions, or contractual liabilities, limit our ability to provide our products and services, subject us to legal action and related costs and damage our business reputation, financial position, and results of operations.

 
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Litigation, arbitration, mediation, regulatory actions, investigations or other legal proceedings could result in material rulings, decisions, settlements, fines, penalties or publicity that could adversely affect our business, financial condition and results of operations.
 
Our industry has in the past been, and may in the future continue to be, party to class actions, regulatory actions, investigations, arbitration, mediation and other legal proceedings. The outcome of such proceedings is often difficult to assess or quantify. Plaintiffs, regulatory bodies or other parties may seek very large or indeterminate amounts of money from us or substantial restrictions on our business activities, and the results, including the magnitude, of lawsuits, actions, settlements, decisions and investigations may remain unknown for substantial periods of time. The cost to defend, settle or otherwise finalize lawsuits, regulatory actions, investigations, arbitrations, mediations or other legal proceedings may be significant and such proceedings may divert management’s time.  In addition, there may be adverse publicity associated with any such developments that could decrease consumer acceptance of our products and services. As a result, litigation, arbitration, mediation, regulatory actions or investigations involving us may adversely affect our business, financial condition and results of operations
 
We are subject to substantial federal, state, local and foreign laws and government regulation specific to our business.
 
Our business is subject to federal, state, local and foreign laws and government regulation, including those relating to copyright law, access to kiosks in public places, consumer privacy and protection, data protection and information security, taxes, vehicle safety, weights and measures, payment cards and other payment instruments, food and beverages, sweepstakes, and contests. The application of existing laws and regulations, changes in laws or enactment of new laws and regulations, that apply, or may in the future apply, to our current or future products or services, changes in governmental authorities’ interpretation of the application of various government regulations to our business, or the failure or inability to gain and retain required permits and approvals could materially and adversely affect our business.
 
In addition, many jurisdictions require us to obtain certain licenses in connection with the operations of our businesses. There can be no assurance that we will be granted all necessary licenses or permits in the future, that current licenses or permits will be renewed or that regulators will not revoke current licenses or permits. Given the unique nature of our business and new products and services we may develop or acquire in the future, the application of various laws and regulations to our business is uncertain. Further, as governmental and regulatory scrutiny and action with regard to many aspects of our business increase, we expect that our costs of complying with the applicable legal requirements may increase, perhaps substantially.
 
Failure to comply with these laws and regulations could result in, among other things, revocation of required licenses or permits, loss of approved status, termination of contracts, administrative enforcement actions and fines, class action lawsuits, cease and desist orders and civil and criminal liability. The occurrence of one or more of these events, as well as the increased cost of compliance, could materially adversely affect our business, financial condition and results of operations.
 
If we cannot manage our growth effectively, we could experience a material adverse effect on our business, financial condition and results of operations.
 
As we begin to scale our business we may make errors in predicting and reacting to relevant business trends, which could have a material adverse effect on our business, financial condition and results of operations. For example, we may, among other things, over-install kiosks in certain geographic areas leading to non-accretive installations, and we cannot be certain that historical revenue ramps for new kiosks will be sustainable in the future.
 
This growth may place significant demands on our operational, financial and administrative infrastructure and our management. As our operations grow in size, scope and complexity, we anticipate the need to integrate, as appropriate, and improve and upgrade our systems and infrastructure, both those relating to providing attractive and efficient consumer products and services and those relating to our administration and internal systems, processes and controls.  This integration and expansion of our administration, processes, systems and infrastructure may require us to commit and will continue to cause us to commit, substantial financial, operational and technical resources to managing our business.
 
Managing our growth will require significant expenditures and allocation of valuable management and operational resources. If we fail to achieve the necessary level of efficiency in our organization, including otherwise effectively growing our business lines, our business, operating results and financial condition could be harmed.
 
We may not have the ability to pay interest on our Notes, to repurchase the convertible notes upon a fundamental change or to settle conversions of the Notes, as may be required.
 
If a fundamental change occurs under the indenture governing our Notes, holders of the Notes may require us to repurchase, for cash, all or a portion of their Notes. In addition, upon satisfaction of certain conversion conditions (including conditions outside of our control, such as market price or trading price) and proper conversion of the Notes by a holder, we will be required to make cash payments.  Depending on the amount and timing of the payment requirements, we may not have been able to meet all of the obligations relating to Note conversions, which could have had a material adverse effect.

 
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Further, if we fail to pay interest on, carry out the fundamental change repurchase obligations relating to, or make payments (including cash) upon conversion of, the Notes, we will be in default under the indenture governing the Notes. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our existing and future indebtedness.  If the repayment of indebtedness were to be accelerated, including after any applicable notice or grace periods, we may not, among other things, have sufficient funds to repay indebtedness or pay interest on, carry out our repurchase obligations relating to, or make cash payments upon conversion of, the Notes.
 
Conversion of our convertible notes into common stock could result in additional dilution to our stockholders.
 
Upon satisfaction of certain conversion conditions (including conditions outside of our control, such as market price or trading price) and proper conversion of the Notes by a holder, we may be required to deliver shares of our common stock to a converting holder.  If additional shares of our common stock are issued due to conversion of some or all of the outstanding Notes, the ownership interests of existing stockholders would be diluted. Further, any sales in the public market of any shares of common stock issued upon conversion or hedging or arbitrage trading activity that develops due to the potential conversion of the Notes could adversely affect prevailing market prices of our common stock.

Competitive pressures could seriously harm our business, financial condition and results of operations.
 
The nature and extent of consolidations and bankruptcies, which often occur during or as a result of economic downturns, in markets where we install our kiosks, particularly the supermarket and other retailing industries, could adversely affect our operations, including our competitive position, as the number of installations and potential retail users of our kiosks could be significantly reduced. See the risk factor below entitled, “Events outside of our control, including the current economic environment, has negatively affected, and could continue to negatively affect, consumers’ use of our products and services.”
 
Our business can be adversely affected by severe weather, natural disasters and other events beyond our control, such as earthquakes, fires, power failures, telecommunication loss and terrorist attacks.
 
A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations and our operating results. While we have taken steps to protect the security of critical business processes and systems and have established certain back-up systems and disaster recovery procedures, any disruptions, whether due to inadequate back-up or disaster recovery planning, failures of information technology systems, interruptions in the communications network, or other factors, could seriously harm our business, financial condition and results of operations.
 
In addition, our operational and financial performance is a direct reflection of consumer use of and the ability to operate and service our kiosks used in our business. Severe weather, natural disasters and other events beyond our control can, for extended periods of time, significantly reduce consumer use of our products and services as well as interrupt the ability of our employees and third-party providers to operate and service our kiosks.
 
Our failure to meet consumer expectations with respect to pricing our products and services may adversely affect our business and results of operations.
 
Demand for our products and services may be sensitive to pricing changes. We evaluate and update our pricing strategies from time to time, and changes we institute may have a significant impact on, among other things, our revenue and net income. 
 
We may be unable to attract new host locations, broaden current host relationships, and penetrate new markets and distribution channels.
 
In order to increase our kiosk installations, we need to attract new host locations, broaden relationships with current host locations, and develop operational efficiencies that make it feasible for us to penetrate low density markets and new distribution channels.  We may be unable to attract host locations or drive down costs relating to the manufacture, installation or servicing of our kiosks to levels that would enable us to operate profitably in lower density markets or penetrate new distribution channels. If we are unable to do so, our future financial performance could be adversely affected.
 
Payment of increased fees to host locations or other third party service providers could negatively affect our business results.
 
We face ongoing pricing pressure from our host locations to increase the commission fees we pay to them on our products and services or to make other financial concessions to win or retain their business. If we are unable to respond effectively to ongoing pricing-related pressures, we may fail to win or retain certain accounts. Our fee arrangements are based on our evaluation of unique factors with each retailer, such as total revenue, long-term, non-cancelable contracts, installation of our kiosks in high-traffic, geographic locations and new product and service commitments. Together with other factors, an increase in service fees paid, or other financial concessions made, to our retailers could significantly increase our direct operating expenses in future periods and harm our business.

 
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Events outside of our control, including the current economic environment, have negatively affected, and could continue to negatively affect, consumers’ use of our products and services.
 
Our consumers’ use of many of our products and services is dependent on discretionary spending, which is affected by, among other things, economic and political conditions, consumer confidence, interest and tax rates, and financial and housing markets. With economic uncertainty still affecting potential consumers, we may be impacted by more conservative purchasing tendencies with fewer non-essential products and services purchases during the coming periods if the current economic environment continues. In addition, because our business relies in part on consumers initially visiting host locations to purchase products and services that are not necessarily our products and services, if consumers are visiting retailers less frequently and being more careful with their money when they do, these tendencies may also negatively impact our business.  Further, our ability to obtain additional funding in the future, if and as needed, through equity issuances or loans, or otherwise meet our current obligations to third parties, could be adversely affected if the economic environment continues to be difficult. In addition, the ability of third parties to honor their obligations to us could be negatively impacted, as retailers, suppliers and other parties deal with the difficult economic environment. Finally, there may be consequences that will ultimately result from the current economic conditions that are not yet known, and any one or more of these unknown consequences (as well as those currently being experienced) could potentially have a material adverse effect on our financial condition, operating results and liquidity, as well as our business generally.

Our future operating results may fluctuate.
 
Our future operating results will depend significantly on our ability to continue to drive new and repeat use of our kiosks, our ability to develop and commercialize new products and services, and our ability to successfully integrate acquisitions and other third-party relationships into our operations. Our operating results could fluctuate and may continue to fluctuate based upon many factors, including:
 
 
 
fluctuations in revenue generated by kiosk businesses;

 
 
fluctuations in operating expenses, such as transaction fees and commissions we pay to our host locations;

 
 
our ability to establish or maintain effective relationships with significant partners, host locations and suppliers on acceptable terms;

 
 
the amount of service fees that we pay to our host locations;

 
 
the transaction fees we charge consumers to use our services;

 
 
the commercial success of our host locations, which could be affected by such factors as general economic conditions, severe weather or strikes;

 
 
the successful use and integration of assets and businesses acquired or invested in;

 
 
the level of product and price competition;

 
 
the timing and cost of, and our ability to develop and successfully commercialize, new or enhanced products and services;

 
 
activities of, and acquisitions or announcements by, competitors; and;

 
 
the impact from any impairment of inventory, goodwill, fixed assets or intangibles related to our acquisitions and divestitures.
 
We depend upon third-party manufacturers, suppliers and service providers for our kiosks.
 
We depend on outside parties to manufacture our kiosks. We intend to continue to expand our installed base of kiosks. Such expansion may be limited by the manufacturing capacity of our third-party manufacturers and suppliers. Third-party manufacturers may not be able to meet our manufacturing needs in a satisfactory and timely manner. If there is an unanticipated increase in demand for our kiosks or our manufacturing needs are not met in a timely and satisfactory manner, we may be unable to meet demand due to manufacturing limitations which could seriously harm our business, financial condition and results of operations.

 
9

 
 

In addition, we rely on third-party service providers for substantial support and service efforts that we currently do not provide directly.  Any failure by us to maintain our existing support and service relationships or to establish new relationships on a timely basis or on acceptable terms could harm our business, financial condition and results of operations.

Risks Related to our Securities
 
Since our common stock is thinly traded it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the price paid.
 
Since our common stock is thinly traded, its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control, including:
 
 
·
the trading volume of our shares;  
 
·
the number of securities analysts, market-makers and brokers following our common stock;  
 
·
changes in, or failure to achieve, financial estimates by securities analysts;  
 
·
new products or services introduced or announced by us or our competitors;  
 
·
actual or anticipated variations in quarterly operating results;  
 
·
conditions or trends in our business industries;  
 
·
announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;  
 
·
additions or departures of key personnel;  
 
·
sales of our common stock; and  
 
·
general stock market price and volume fluctuations of publicly-traded, and particularly microcap, companies.
 
The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our common stock is thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline regardless of how well we perform as a company. In addition, securities class action litigation has often been initiated following periods of volatility in the market price of a company’s securities. A securities class action suit against us could result in substantial legal fees, potential liabilities and the diversion of management’s attention and resources from our business. Moreover, our shares are currently traded on the OTC Bulletin Board and, further, are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to manipulation by market-makers, short-sellers and option traders.
 
Our common stock may be considered “penny stock”, further reducing its liquidity.
 
Our common stock may be considered “penny stock”, which will further reduce the liquidity of our common stock.  Our common stock is likely to fall under the definition of “penny stock,” trading in the common stock is limited because broker-dealers are required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving the common stock. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers to participate in transactions involving our common stock, thereby further reducing the liquidity of our common stock.
 
"Penny stocks” are equity securities with a market price below $5.00 per share other than a security that is registered on a national exchange, included for quotation on the NASDAQ system or whose issuer has net tangible assets of more than $2,000,000 and has been in continuous operation for greater than three years. Issuers who have been in operation for less than three years must have net tangible assets of at least $5,000,000.
 
Rules promulgated by the Securities and Exchange Commission under Section 15(g) of the Exchange Act require broker-dealers engaging in transactions in penny stocks, to first provide to their customers a series of disclosures and documents including: 
 
 
A standardized risk disclosure document identifying the risks inherent in investment in penny stocks;
 
 
All compensation received by the broker-dealer in connection with the transaction;
 
 
Current quotation prices and other relevant market data; and a Monthly account statements reflecting the fair market value of the securities.
 
These rules also require that a broker-dealer obtain financial and other information from a customer, determine that transactions in penny stocks are suitable for such customer and deliver a written statement to such customer setting forth the basis for this determination.

 
10

 
 

Our directors and executive officers will continue to exert significant control over our future direction, which could reduce the sale value of our Company.
 
As of April 7, 2014 our Board of Directors and our executive officers own approximately 32 percent of our outstanding common stock.  Accordingly, these stockholders, if they act together, will have considerable influence over matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership, which could result in a continued concentration of representation on our Board of Directors, may delay, prevent or deter a change in control and could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our assets.
 
Investors should not anticipate receiving cash dividends on our common stock, thereby depriving investors of yield on their investment.
 
We have never declared or paid any cash dividends or distributions on our common stock and intend to retain future earnings, if any, to support our operations and to finance expansion. Therefore, we do not anticipate paying any cash dividends on the common stock in the foreseeable future.  Such failure to pay a dividend will deprive investors of any yield on their investment in our common stock.
 
Our indemnification of officers and directors and limitations on their liability could limit our recourse against them.
 
Our Certificate of Incorporation and Bylaws contain broad indemnification and liability limiting provisions regarding our officers, directors and employees, including the limitation of liability for certain violations of fiduciary duties.  Shareholders therefore will have only limited recourse against these individuals.
 
If we fail to implement and maintain proper and effective internal controls and disclosure controls and procedures, our ability to produce accurate and timely financial statements and public reports could be impaired, which could adversely affect our operating results, our ability to operate our business and investors’ views of us.
 
Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company to evaluate the effectiveness of its internal control over financial reporting as of the end of each year, and to include a management report assessing the effectiveness of the Company’s internal control over financial reporting in each Annual Report on Form 10-K.

We have identified our disclosure controls and procedures were not effective and that material weaknesses exists in our internal control over financial reporting.  The material weaknesses consist of an insufficient complement of qualified accounting personnel and controls associated with segregation of duties and ineffective controls associated with identifying and accounting for complex and non-routine transactions in accordance with U.S. generally accepted accounting principles.  Due to the material weaknesses in internal control over financial reporting and disclosure controls and procedures, there may be errors in the Company’s financial statements and in the accompanying footnote disclosures that could require restatements. Investors may lose confidence in our reported financial information and disclosure, which could negatively impact our stock price.

We do not expect that our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We have additional common stock and preferred stock available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock.

Our Certificate of Incorporation authorizes the issuance of up to 600,000,000 shares of our common stock and up to 10,000,000 shares of preferred stock.  The common stock and the preferred stock can be issued by the Board of Directors, without stockholder approval.  As of April 7, 2014, there are 1,353,068,182 shares of our common stock outstanding, which exceeds the number of authorized shares of common stock. Further, as of April 7, 2014, there are approximately 5 billion instruments outstanding that can be converted into shares of our common stock.

ITEM 1B – UNRESOLVED STAFF COMMENTS

None.

 
11

 
 

ITEM 2 - PROPERTIES

       We lease approximately 3,600 square feet of office and warehouse space at 2475 Devon Road, Elk Grove, IL at a rate of $1,875 per month on a five year lease expiring October 2018.  This location is used to service our self-serve electronic kiosks in the Chicago area.  Our corporate mailing address is 1507 7 th Street, Unit 425, Santa Monica, CA 90401.

ITEM 3 - LEGAL PROCEEDINGS

There are no material legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable 

 
12

 
 

PART II

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Effective on February 25, 2011, our common stock commenced its public listing on the OTC Bulletin Board (OTC: BB), where it trades under the symbol “ITMV”.

The table below sets forth the range of quarterly high and low closing sales prices for our common stock for 2013 and 2012. The quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:
 
   
High
   
Low
 
Year ending December 31, 2013
           
             
First Quarter
 
$
0.095
   
$
0.008
 
Second Quarter
 
$
0.032
   
$
0.004
 
Third Quarter
 
$
0.008
   
$
0.002
 
Fourth Quarter
 
$
0.002
   
$
0.001
 

   
High
   
Low
 
Year ending December 31, 2012
           
             
First Quarter
 
$
0.15
   
$
0.04
 
Second Quarter
 
$
0.04
   
$
0.02
 
Third Quarter
 
$
0.01
   
$
0.01
 
Fourth Quarter
 
$
0.01
   
$
0.01
 
 
The last reported sales price of our common stock on the OTC Bulletin Board on April 7, 2014 was $0.0008.

Issued and Outstanding

Our certificate of incorporation authorizes 600,000,000 shares of Common Stock, par value $0.001 and 10,000,000 shares of Preferred Stock, par value $0.001. As of April 7, 2014, we had 1,353,068,182 shares of Common Stock, and 0 shares of Preferred Stock issued and outstanding.  As of December 31, 2013 there were not adequate authorized shares to satisfy the current obligations upon conversion or exercise issued by the Company.

Stockholders

As of April 1, 2014, we had approximately 937 record holders of our common stock.  This number does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers.

Dividends

We did not pay dividends during 2013 or 2012.  We have never declared or paid any cash dividends or distributions on our common stock and intend to retain future earnings, if any, to support our operations and to finance expansion. Therefore, we do not anticipate paying any cash dividends on the common stock in the foreseeable future

Stock Transfer Agent and Warrant Agent

Our stock transfer agent is Corporate Stock Transfer, 3200 Cherry Creek Drive South, Suite 430, Denver, CO 80209. We act as our own warrant agent for our outstanding warrants.

Recent Issuances of Unregistered Securities
 
Convertible Notes Payable  During the three months ended December 31, 2013, the Company issued 101,335,539 shares of common stock through the conversion of Convertible Notes Payable and accrued interest.  The shares of common stock issued in this transaction have not been registered under the Securities Act of 1933, as amended and were issued and sold in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. Subsequent to December 31, 2013, the Company issued 1,724,138 shares of its common stock upon receipt of a notice of conversion on interest related to the Company’s convertible notes payable.  These common shares were issued in satisfaction of $500 of accrued interest on February 5, 2014 at a conversion rate of $0.00029 per share. The Company has received confirmation by the lender that no amounts of principal or accrued interest remain outstanding at February 5, 2014.
 

 
13

 
 

Revolving Note from Related Party  On December 16, 2013, the Company issued 98,000,000 shares of common stock at a conversion price of $0.0008 in satisfaction of $80,746 of principal and interest in connection with the conversion of its Related Party Revolving Note Payable. On December 30, 2013, the Company issued 182,475,000 shares of common stock at a conversion price of $0.0008 in satisfaction of $145,980 of principal and interest in connection with the conversion of its Related Party Revolving Note Payable.
 
These securities were not registered under the Securities Act.  These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act.  This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

Merger with U-Vend    On January 7, 2014, IMS entered into an Exchange of Securities Agreement (“Agreement”) with U-Vend Canada, Inc. Pursuant to the agreement, IMS acquired all the outstanding shares of U-Vend in exchange for 466,666,667 shares of IMS common stock. Certain shareholders of U-Vend Canada, Inc. will also have the ability to earn up to an additional 603,046,666 shares of IMS common stock subject to certain earn-out provisions based on targeted revenue achievement in 2014 and 2015.  Effective on January 7, 2104, as a result of the merger, U-Vend became a wholly owned subsidiary of IMS. In connection with the merger, IMS issued on the closing date, its securities to U-Vend’s shareholders in exchange for the common stock owned by U-Vend’s shareholders as follows: an aggregate of 466,666,667 shares of the IMS common stock, par value $0.001 per share (“Common Stock”).  In addition, IMS issued an aggregate of 352,422,184 shares of Common Stock and 822,787,600 warrants to financial advisors as compensation for their services in connection with the transaction contemplated by the merger agreement. The warrants granted to the financial advisors have the following terms: 160 million warrants with a 15 month term and an exercise price of $0.00025, 160 million warrants with a 5 year term and an exercise price of $0.0003, 10 million warrants with a term of 2 years and an exercise price of $0.0012, and 492,787,600 warrants with a term of 2 years and an exercise price of $.000075 per share.
 
These securities were not registered under the Securities Act.  These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act.  This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

Senior Convertible Notes Payable issued with Warrants    During the fourth quarter of 2013 and pursuant to the August 2013 Securities Purchase Agreement ("SPA") dated June 18, 2013 with Cobrador Multi-Strategy Partners, LP ("Investor") the Company completed a third ($50,000 in October 2013) fourth ($20,000 in November 2013), and fifth ($30,000 in December 2013), tranche of financing. Total senior convertible notes issued in 2013 of $200,000 face value are convertible ranging from $0.00025 to $0.001 per share. Senior convertible notes payable issued during the fourth quarter include Series A warrants to purchase 525,000,000 shares of common stock and Series B warrants to purchase 525,000,000 shares of common stock. The exercise prices of the Series A warrants range from $0.001 to $0.00025 per share and have a 15 month term from date of grant.  The exercise prices of the Series B warrants range from $0.0012 to $0.0003 per share and have a five year term from date of grant. All terms are consistent with previous financing transactions previously disclosed on the Company’s 3 rd quarter 2013 Form 10-Q including a 4.99% beneficial ownership limit of the Company’s common stock.  

Subsequent to December 31, 2013 the Company completed a sixth ($50,000 in January 2014), seventh ($25,000 in February 2014), eighth ($25,000 in March 2014) and ninth ($25,000 in April 2014) tranche of financing in connection with the SPA.  Total senior convertible notes issued in the first quarter of 2014 of $125,000 face value are convertible at range from $0.00015 to $0.00025 per share and include Series A warrants to purchase 750,000,000 shares of common stock and Series B warrants to purchase 750,000,000 shares of common stock. The Series A warrants granted in 2014 have an exercise price of $0.00025 per share and have a 15 month term from date of grant. The Series B warrants granted in 2014 have an exercise price of $0.0003 per share and have a five year term from date of grant. All terms are consistent with previous financing transactions previously disclosed on the Company’s 3 rd quarter 2013 Form 10-Q including a 4.99% beneficial ownership limit of the Company’s common stock.  As of April 7, 2014 the Company has received $325,000 of the $400,000 SPA.

 
14

 
 

The Company and the Investor have entered into a registration rights agreement covering the registration of common stock underlying the Senior Convertible Notes the Warrants. The Company is required to file a registration statement within 120 days after completion of the acquisition of U-Vend and meet an effectiveness deadline of 165 days after the closing date of the acquisition, 195 days if the Securities and Exchange Commission provides comment. If the Company fails to comply with the terms of the registration rights agreement, the Investor would be entitled to an amount in cash equal to one percent (1%) of the Investor’s original principal amount stated in each Senior Convertible Note on the date of the failure and monthly thereafter until failure is cured and all registration rights have been paid. Management believes the registration statement will be filed and effective timely, and as of December 31, 2013, the Company has not accrued any amount for potential registration rights penalties.

Capital Lease Obligation with U-Vend   In November 2013, IMS and U-Vend jointly entered into an equipment lease agreement with Automated Retail Leasing Partners (“Lessor”) for leased equipment worth approximately $197,000.  The assets and obligations under this agreement are recorded in the accounts of U-Vend, with IMS having joint liability. As per the terms of the agreement, U-Vend is obligated to pay $57,202 annually including interest at 14% per annum and also buy the equipment from the Lessor for approximately $86,790 in November 2016. In addition, the Lessor will receive 50% warrant coverage of the funding provided.  In conjunction with the November 2013 equipment leases financing, the Lessor received 197,250,000 IMS common stock warrants with a term of three years, and an exercise price of $0.0006.  Subsequent to December 31, 2013, the Company issued the Lessor an additional 47,562,211 warrants as consideration for its second draw under the equipment lease agreement. The warrants include a 4.99% beneficial ownership limit of the Company’s common stock.

The Company and the Lessor have entered into a registration rights agreement covering the registration of 110% of common stock underlying the Warrants. The Company is required to file a registration statement within 45 days after completion of the acquisition of U-Vend and meet an effectiveness deadline of 90 days after the closing date of the acquisition, 120 days if the Securities and Exchange Commission provides comment.  If the Company fails to comply with the terms of the registration rights agreement, the Lessor would be entitled to an amount in cash equal to one percent (1%) of the Lessor’s original lease amount on the date of the failure and monthly thereafter until failure is cured and all registration rights have been paid. Management does not believe that the potential registration rights penalties related to this agreement will be significant.

Warrant Exercise    Subsequent to December 31, 2013, the Company issued 43,000,000 common shares in connection with the exercise of common stock warrants. The Company received $13,600 in proceeds from this warrant exercise. The proceeds of this exercise were used to fund general operations of the Company.

Share Repurchased by the Registrant

We did not purchase or repurchase any of our securities in the fiscal year ended December 31, 2013.

Securities authorized for issuance under equity compensation plans

On July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”) and on July 26, 2011, shareholders holding a majority of shares of the Company approved, by written consent, the Plan. The total number of shares of common stock available for issuance under the Plan is 5,000,000 shares. Awards may be granted to employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its related companies. Such options may be designated at the time of grant as either incentive stock options or nonqualified stock options. Stock based compensation includes expense charges related to all stock-based awards. Such awards include options, warrants and stock grants. Generally, the Company issues stock options that vest over three years and expire in 5 to 10 years.

The Company records share based payments under the provisions of ASC 718. Stock based compensation expense is recognized over the requisite service period based on the grant date fair value of the awards. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model on certain assumptions. The Company estimated the expected volatility based on data used by peer group of public companies. The expected term was estimated using the simplified method. The risk-free interest rate assumption was determined using the equivalent U.S. Treasury bonds yield over the expected term. The Company has never paid any cash dividends and does not anticipate paying any cash dividends in the foreseeable future. Therefore, the Company assumed an expected dividend yield of zero.

The following table sets forth information as of December 31, 2013 regarding equity compensation plans under which our equity securities are authorized for issuance.

 
15

 
 

Equity Plan Compensation Information

 Plan Category
 
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
   
Weighted average
exercise price of
outstanding
options, warrants
and rights
   
Number of securities remaining available for
future issuance under
equity compensation
Plans (excluding
securities reflected in
column (a))
 
   
(a)
   
(b)
   
(c)
 
                   
Equity compensation plans approved by securities holders (1)
   
2,630,000
   
$
0.29
     
2,370,000
 
                         
Total
   
2,630,000
             
2,370,000
 

(1)  
Pursuant to our 2011 Equity Incentive Plan
 
 
ITEM 6 – SELECTED FINANCIAL INFORMATION

This item is not applicable to us as a smaller reporting company.

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS
  
Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”).   Internet Media Services, Inc. desires to avail itself of certain “safe harbor” provisions of the 1995 Reform Act and is therefore including this special note to enable us to do so.  Except for the historical information contained herein, this report contains forward-looking statements (identified by the words "estimate," "project," "anticipate," "plan," "expect," "intend," "believe," "hope," "strategy" and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements, including, without limitation, those discussed under Part I, Item 1A “Risk Factors” in this Annual Report, and those described herein that could cause actual results to differ materially from the results anticipated in the forward-looking statements, and the following:
 
Our limited operating history with our business model.
The low cash balance and limited financing currently available to us. We may in the near future have a number of obligations that we will be unable to meet without generating additional income or raising additional capital.
Further cost reductions or curtailment in future operations due to our low cash balance and negative cash flow.
Our ability to effect a financing transaction to fund our operations which could adversely affect the value of our stock.
Our limited cash resources may not be sufficient to fund continuing losses from operations.
The failure of our products and services to achieve market acceptance.
The inability to compete in our market, especially against established industry competitors with greater market presence and financial resources

The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition and should be read in conjunction with the financial statements and footnotes that appear elsewhere in this report.

General
 
 We were incorporated in March 2007 as a Delaware corporation and refer to ourself herein as “we”, “us”, the “Company” or “IMS.”  We conduct our operations in Santa Monica, California and through March 13, 2013 used an independent warehouse and product fulfillment center in Western New York state.  Our corporate office is located at 1507 7 th Street, #425, Santa Monica, CA 90401 and our telephone number is (800) 467-1496. Our corporate website address is www.internetmediaservices.com.   Information contained on our websites is not a part of this annual report.

 
16

 
 

Nature of Business

On January 7, 2014, we entered into an Exchange of Securities Agreement (“Agreement”) by and between ourselves, U-Vend Canada, Inc. and the shareholders of U-Vend Canada, Inc.   U-Vend Canada, Inc. together with its wholly owned subsidiary, U-Vend USA LLC (collectively, “U-Vend”), is in the business of developing, marketing and distributing co-branded self-serve electronic kiosks, mall/airport co-branding islands, and digital advertising solutions throughout North America.  As of December 31, 2013 U-Vend owns and operates 33 kiosks in the greater Chicago, IL area and markets products supplied by its co-branding partners.  Pursuant to the Agreement, we have acquired all of the outstanding shares of U-Vend in exchange for 466,666,667 shares of our common stock.  Certain shareholders of U-Vend Canada, Inc. will also have the ability to earn up to an additional 603,046,666 shares of our common stock subject to certain earn-out provisions more fully described in the Agreement.  The Agreement was approved by a written consent by the majority of the Company's stockholders and by the Company’s Board of Directors (see Subsequent Events Note of the Company’s consolidated financial statements.)

On October 8, 2009, we completed an acquisition in the legal vertical market through the purchase of the assets and assumption of certain liabilities of LegalStore.com.  LegalStore.com is an Internet based company that primarily sells legal supplies and legal forms.   Despite sustained efforts from 2009 through 2012 to bring to market our customer relationship solutions product offerings, we were unable to secure the needed funding.  As a result, in early 2013 we elected to change the strategic direction of the Company.  On March 13, 2013, the Company entered into a stock sale agreement with Western Principal Partners LLC (“WPP”), a California Limited Liability Company. Pursuant to the Agreement, WPP purchased from the Company all the outstanding capital stock of the Company’s wholly-owned subsidiary, LegalStore.com, a Delaware Corporation. LegalStore.com was operating the Company’s e-commerce business.  The Agreement was approved by a written consent by the majority of the Company's stockholders.  In consideration of the sale, WPP agreed to pay to the Company total consideration of $210,000 including assumption of operating liabilities. Operating liabilities included, but are not limited to existing operating agreements, trade payables and certain tax obligations. The fair value of consideration received for the stock of LegalStore.com was less than the carrying value of the assets. As a result, an impairment charge was recorded as December 31, 2012 in the amount of approximately $35,000, net of income tax effect (see Note 2 Discontinued Operations of the Company’s consolidated financial statements.)
 
In accordance with FASB ASC 205-20 “Discontinued Operations-Other Presentation Matters” results of LegalStore.com operations are presented as discontinued operations on the consolidated balance sheets, statements of operations and statements of cash flows.
 
Management's plans
 
The accompanying consolidated financial statements have been prepared on a going concern basis. As shown in the accompanying consolidated financial statements, the Company incurred a loss of approximately $387,000 during the year ended December 31, 2013, has incurred accumulated losses totaling approximately $1,774,000, has a stockholders’ deficiency of approximately $329,000 and has a working capital deficit of approximately $131,000 at December 31, 2013. These factors, among others, indicate that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
The Company needs to raise additional financing to fund the Company’s operations for fiscal year 2014, to allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis. Should additional financing not be available, the Company will have to negotiate with its lenders to extend the repayment dates of its indebtedness. There can be no assurance, however, that the Company will be able to successfully restructure its debt obligations in the event it fails to obtain additional financing.

As discussed above, on January 7, 2014, Internet Media Services, Inc. entered into an Exchange of Securities Agreement with U-Vend Canada, Inc., and the shareholders of U-Vend. The Company believes the merger with U-Vend will provide it with business operations and also necessary working capital.  The Company is in discussion for raising additional capital to execute on its current business plans.  There is no assurance that future financing arrangements will be successful or that the operating results of U-Vend will yield sufficient cash flow to execute the Company’s business plans or satisfy its obligations.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Results of Operations: For the Twelve Months Ended December 31, 2013 and December 31, 2012

Revenue
The Company had no revenue from continuing operations in either year ended December 31, 2013 or 2012.

Operating Expenses
Total operating expenses for continuing operations were $339,885 for the year ended December 31, 2013 compared to $242,506 in the prior year.  This reflects an increase in operating costs of 40% resulting from increases in salaries, benefits and professional fees. As the Company transitioned from the disposal of the LegalStore.com in the first quarter of 2013, management has focused its attention on identifying strategic alternatives that resulted in the merger with U-Vend Canada, Inc. in January of 2014. These efforts have resulted in increased professional services and salaries in the process of identifying and evaluating merger and future financing opportunities, including the chief executive’s salary of $180,000, of which $142,608 remained unpaid at year end. During the year ended December 31, 2012 our executives did not receive salaries. The increase was offset by a decrease in other administrative expenses that primarily relate to  product lines that are no longer part of the current business strategy.

 
17

 
 

Other Expenses
Total other expenses for continuing operations were $68,209 for the year ended December 31, 2013 compared to $142,449 in the prior year, an overall decrease of 52%.  Interest expense for the year ended December 31, 2013 was $35,882 compared to $37,440 in the prior year.  During 2012 additional interest resulted from defaults of convertible promissory notes which were paid off through debt conversions in 2013. During the year ended December 31, 2012, we also incurred a loss of $105,009 associated with the change in the fair value of our convertible promissory notes. During the fourth quarter of 2013, the Company recognized a gain on extinguishment of debt when actual interest liabilities were settled on convertible notes at amounts less than previously accrued in the amount of $31,090.
 
Discontinued Operations
In 2013 the Company realized net income of $19,174 from the LegalStore.com operations that were sold in the first quarter of 2013. The total purchase price of $210,241 was offset by the net assets and liabilities transferred of $206,402 generating a $3,839 as a gain on the sale of LegalStore.com.  In 2012, our loss from discontinued operations was $37,858, including a write-down of assets associated with the discontinued component of $35,000.

Net Loss
As a result of the foregoing, our net loss for the year ended December 31, 2013 decreased by $39,717 or 9.3% to $387,281 compared to a net loss of $426,998 incurred in 2012.
 
Liquidity and Capital Resources
 
At December 31, 2013, we had a working capital deficiency of approximately $131,000 compared to working capital deficiency of approximately $691,000 at December 31, 2012. The decrease in the working capital deficiency was due to reductions in total debt outstanding since December 31, 2012 primarily due to conversion to common stock and new borrowings of $200,000 are recorded net of unamortized discounts of $143,751. During the year ended December 31, 2013, our operating activities from continuing operations used cash of approximately $157,000 compared to approximately $167,000 used during the year ended December 31, 2012.
 
During the year ended December 31, 2013, our operating losses from continuing operations, after adjusting for non-cash items, utilized approximately $331,000 of cash, and working capital items provided approximately $198,000 of cash. The principal component of these working capital changes was an increase in our accounts payable and accrued expenses. During the year ended December 31, 2012, our operating losses from continuing operations, after adjusting for non-cash items, utilized approximately $258,000 of cash, and working capital items provided approximately $53,000 of cash.
 
During the year ended December 31, 2013, we received $176,500 proceeds from senior convertible notes net of financing costs and $50,000 in proceeds from a related party.  We had a net reduction in outstanding amounts on our revolving credit agreement with a related party, primarily due to a conversion of principal to common stock. During the year ended December 31, 2012, we received $10,500 from a private sale of shares of our common stock and had approximately $67,000 of net additional borrowings from a related party. Further, we were able to reduce notes payable and accrued interest through a conversion to equity in the amount of approximately $51,000.
 
The accompanying consolidated financial statements have been prepared on a going concern basis. As shown in the accompanying consolidated financial statements, we incurred a loss of approximately $387,000 during the year ended December 31, 2013, have incurred accumulated losses totaling approximately $1,774,000, have a stockholders’ deficiency of approximately $329,000 and have a working capital deficit of approximately $131,000 at December 31, 2013. These factors, among others, indicate that we may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
To allow us to continue the development of its business plans and satisfy its obligations on a timely basis, we will need to raise additional financing to fund our operations.  Should additional financing not be available, we will have to negotiate with our lenders to extend the repayment dates of its indebtedness. There can be no assurance, however, that we will be able to successfully restructure our debt obligations in the event we fail to obtain additional financing. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.

Inflation

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the last three years as we are generally able to pass the increase in our material and labor costs to our customers, or absorb them as we improve the efficiency of our operations.

 
18

 
 

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.  The consolidated financial statement for the fiscal year ended December 31, 2013, describe the significant accounting policies and methods used in the preparation of the consolidated financial statements.  Actual results could differ from those estimates and be based on events different from those assumptions.  Future events and their effects cannot be predicted with certainty; estimating therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained.  The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements:

Business Combinations

Business combinations are recorded in accordance with FASB ASC 805 “Business Combinations.” Under the guidance, consideration transferred, including contingent consideration, and the assets and liabilities of the acquired business are recorded at their fair values on the date of acquisition. The excess of the purchase price over the estimated fair values is recorded as goodwill. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed then a gain on acquisition is recorded. FASB ASC 805 requires that for each business combination, one of the combining entities shall be identified as the acquirer and the existence of a controlling financial interest shall be used to identify the acquirer in a business combination.  In a business combination effected primarily by exchanging equity interests, the acquirer is usually is the entity that issues its equity interests. In accordance with FASB ASC 805, if a business combination has occurred, but it is not clear which of the combining entities is the acquirer, U.S. GAAP requires considering additional factors in making that determination.  These factors include the relative voting rights of the combined entity, the composition of the governing body of the combined entity, the composition of senior management in the combined entity and the relative size of the combining entities. Under the guidance, all acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset. The application of business combination accounting requires the use of significant estimates and assumptions.
 
Fair Value of Financial Instruments

Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, derivative warrant liabilities, revolving note from related party, convertible notes payables, and senior convertible notes payable. Fair values were assumed to approximate carrying values for these financial instruments, except for derivative warrant liabilities, convertible notes payable and senior convertible notes payable, since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the revolving note from related party approximates the carrying value of the obligations based on these instruments bearing interest at variable rates consistent with the current rates available to the Company. The senior convertible notes payable are recorded at face amount, net of any unamortized discounts, and have an estimated fair value of approximately $210,000 based on the underlying shares the notes can be converted into. The fair value was estimated using the trading price on December 31, 2013, since the underlying shares are trading in an active, observable market, the fair value measurement qualifies as a Level 1 input. The convertible notes payable are measured at fair value each reporting period, as further discussed below in “Fair Value of Debt.” The determination of the fair value of the derivative warrant liabilities includes unobservable inputs and is therefore categorized as a Level 3 measurement, as further discussed in below in “Derivative Financial Instruments.”

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 “Fair Value Measurement” establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

·
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

·
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

·
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 
19

 
 

Fair Value of Debt

Under ASC 480, Distinguishing Liabilities from Equity, the Company determined the notes payable are liabilities reported at fair value because the notes payable will be convertible into a variable number of common shares at fixed monetary amount, known at inception. The notes payable are to be subsequently measured at fair value at each reporting period, with changes in fair value being recognized in earnings. The fair value of the notes payable is measured by calculating possible outcomes of conversion to common shares and repayment of the notes payable, then weighting the probability of each possible outcome according to management’s estimates. The fair value measurement is classified as a Level 3 in the valuation hierarchy.

Derivative Financial Instruments

We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Certain warrants the Company has issued have a “down round provision” and further, the Company does not have adequate shares authorized to accommodate the exercise of all outstanding equity instruments. As a result, the warrants are classified as derivative liabilities for accounting purposes.

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and then is revalued at each reporting date, with changes in fair value reported in the consolidated statement of operations. The methodology for valuing our outstanding warrants classified as derivative instruments was determined based on the consideration of the enterprise value of the Company, the limited market of the shares issuable under the agreement and modeling of the Black Scholes valuations using multiple volatility assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The warrant liability is measured at fair value using certain estimated factors such as volatility and probability which are classified within Level 3 of the valuation hierarchy. Significant unobservable inputs are used in the fair value measurement of the Company’s derivative warrant liabilities include impact of dilution and volatility. Significant increases (decreases) in the volatility input would result in a significantly higher (lower) fair value measurement.

Income Tax

We account for income taxes using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of our assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The measurement of deferred income tax assets are reduced to the extent of the tax benefits not expected to be realized in the future.  We considered whether it is more likely than not that the tax attributes making up the deferred tax assets will be utilized in the future.  We reviewed the activity that resulted in historical net losses and determined there was not sufficient evidence to support the net deferred tax assets.  Accordingly, we have recorded a valuation allowance that fully offsets our net deferred tax assets.

We review tax positions taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain tax position.  We did not have any material unrecognized tax benefit at December 31, 2013 and 2012.  We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense.  During the years ended December 31, 2013 and 2012, we did not recognize any interest and penalties.
 
Share-Based Payments

We record our common shares issued based on the value of the shares issued or consideration received, including cash, services rendered or other non-monetary assets, whichever is more readily determinable.

Discontinued Operations

As a result of the board of directors committing to a plan to sell LegalStore.com prior to December 31, 2012, the related assets and liabilities are considered to be held for sale and are presented as discontinued operations on the balance sheet as of December 31, 2012. In accordance with ASC 205-20 “Discontinued Operations” the Company has presented the results of LegalStore.com operations as discontinued operations in the accompanying statements of operations and statements of cash flows for the years ended December 31, 2013 and 2012.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

 
20

 
 

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our audited financial statements for the fiscal years ended December 31, 2013 and 2012 follow Item 14, beginning at page F-1.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A - CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer  also acting as chief financial officer , as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Our chief executive officer also acting as chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this annual report, has concluded that our disclosure controls and procedures were not effective and that material weaknesses described below exists in our internal control over financial reporting based on his evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
 
Management’s Annual Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the chief executive officer also acting as chief financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
Our evaluation of internal control over financial reporting includes using the 1992 COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.
 
Based on our evaluation under the frameworks described above, our management concluded that as of December 31, 2013, that our disclosure controls and procedures were not effective and that material weaknesses exists in our internal control over financial reporting.  The material weaknesses consist of an insufficient complement of qualified accounting personnel and controls associated with segregation of duties and ineffective controls associated with identifying and accounting for complex and non-routine transactions in accordance with U.S. generally accepted accounting principles.  To address the material weaknesses we performed additional analyses and other post-closing procedures and retained the services of a consultant to ensure that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).  Notwithstanding these material weaknesses, management believes that the financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial condition, result of operations and cash flows for the periods presented.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
 
Changes in Internal Control Over Financial Reporting
 
There was no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the year ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
ITEM 9B – OTHER INFORMATION

None 

 
21

 
 

PART III
 
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS and CORPORATE GOVERNANCE

Directors and Executive Officers
 
Name
Age
Position
Director/Officer Since
       
Raymond Meyers
57
Chief Executive Officer, President,
April 2008
   
Principal Financial Officer, Treasurer, Secretary and Director
 
       
Michael Buechler (1)
41
Former Secretary and Director
June 2009
       
Paul Neelin (2)
50
Director
January 2014
       
Alexander A. Orlando
51
Director
April 2008
       
Patrick White
60
Director
October 2009
       
Philip Jones
45
Director
October 2009
 
(1)  
Resigned January 7, 2014
(2)  
Effective January 7, 2014

The principal occupations for at least the past five years of each of our directors and executive officers are as follows:
 
Raymond Meyers founded IMS in March 2007 and has been Chief Executive Officer and President since the Company’s inception.  Mr. Meyers founded and operated several technology-based companies, with the most recent one being eBoz, Inc., an Internet marketing tools company, which he operated from November 2001 to April 2005 and sold to Web.com (NasdaqGM: WWWW), formerly Website Pros, Inc.,  in April 2005.  From April 2005 to December 2006 he was an employee of Web.com holding the position of General Manager, eBoz Division.  He was previously (from December 1996 to December 1999) CEO and President of ProtoSource Corporation, a NASDAQ listed company.  He is a graduate of Rutgers University with continuing education at UCLA. We believe that as a result of his service as our Founder, President and Chief Executive Officer since inception, which adds historical knowledge, operational expertise and continuity to our board of directors, and his extensive corporate management experience, including serving as the chief executive officer of a publically-held company, he  provides the board with a deep understanding of all aspects of our business, both strategically and operationally, and therefore should serve on our board.
 
Michael Buechler was IMS’s Executive Vice President – Web Properties from March 2009 through January 2012 and resigned as Secretary and Director on January 7, 2014.  Mr. Buechler currently holds the position of Director of Product at Dun and Bradstreet Credibility Corp.  Mr. Buechler co-founded Linkbuddies.com banner exchange in 1998 and operated it until it was sold to iBoost, Inc. in 2000.  LinkBuddies was one of the first banner exchanges in the world.  Mr. Buechler was Vice President – Web Properties at eBoz, Inc., an Internet marketing tools company from 2001 until its sale to Web.com (formerly Website Pros, Inc.) in 2005.  From 2005 to 2008, he was employed by Web.com as Director – Product Strategy and was responsible for product strategy for this NASDAQ listed web services company.  Mr. Buechler has a thorough understanding of our business and industry and has been instrumental in our development.  
 
Paul Neelin   founded U-Vend Canada Inc. in 2009 and was subsequently acquired by Internet Media Services, Inc.  in January 2014.  Mr. Neelin serves as the Company’s Chief Operations Officer and is responsible for approving new product development, assisting in strategic acquisitions, managing brand partner relationships, and overseeing national and international growth .  He offers a unique blend of executive acumen with over 30 years of entrepreneurial experience with several successful ventures. These include food and beverage design businesses and operations as both a franchisee and franchisor.  He was the Founder of a design and manufacturing company that designed and developed a series of mobile trailers taking brands to non-traditional venues.  Mr. Neelin successfully developed mobile trailers for McDonald's worldwide (Japan, Amsterdam, three Walt Disney Parks). Mobile trailers and carts were also designed for Coca-Cola, Kodak, Mr. Sub, Hagen Daz, and Labatt's breweries.  He was instrumental in laying the groundwork for the establishment of U-Vend. Having a strategic vision of modernizing vending, Mr. Neelin worked with several kiosk manufacturing companies testing various makes and models of kiosks before deciding and insisting on North American made equipment only. This standard is currently being used and will continue to be one of U-Vend’s core values moving forward.  We believe that as a result of his service as the Founder of U-Vend Canada Inc., Mr. Neelin possesses invaluable historical knowledge and operational expertise, and therefore should serve on our board.

 
22

 
 

Alexander Orlando holds the positions of Chief Financial Officer and Treasurer for Eagle International Institute, Inc. from March, 2008 to Present.  He was Vice President for eBoz, Inc., an Internet marketing tools company, from January 2000 to December 2007, Senior Executive for ITT Industries-Goulds Pumps from August 1998 to December 1999, General Manager and Controller for Foley-PLP from Jan 1995 to Aug 1998,   Managing Partner of Wagner's Tax and Consulting Services and owner of several Subway Sandwich Franchises and Real Estate Investments from 1995 to Present.  He is a graduate of Ithaca College with a BS in Finance and Accounting, with continuing education at Geneseo State College.  We believe Mr. Orlando should serve on our board of directors based on the perspective he brings to our board of directors from his exposure to the internal and external financial requirements and controls of both large and smaller technology companies, and the unique perspective he brings to the our board of directors from his entrepreneurial experiences.

Patrick White was Chief Executive Officer and a Director of Document Security Systems, Inc. (“DSS”) from August 2002 to December 2012.  In addition, Mr. White was President of DSS from August 2002 until June 2006 and was Chairman of the Board of Directors of DSS from August 2002 until January 2008.  DSS is an NYSE AMEX listed company. Mr. White received his Bachelors of Science (Accounting) and Masters of Business Administration degrees from Rochester Institute of Technology.  We believe Mr. White is qualified to serve on our board of directors based on his extensive corporate management experience, including serving as the chief executive officer of a publically-held company (DSS), and his experience with the organizational challenges involved with becoming and operating as a publically-held company.
 
Philip Jones is a CPA and holds an MBA from Rochester Institute of Technology.  He has 13 years experience in both the public and private accounting and finance sectors, including positions at Arthur Anderson  from 1996 to 1998 and PricewaterhouseCoopers from  2003 to  2004 , American Fiber Systems (Controller) from  2000 to  2003, and 2004 to 2005 , and Zapata (NYSE:ZAP)(Accounting Manager and Director of Finance) from  1998  to  2000 . Mr. Jones joined Document Security Systems, Inc. ("DSS") in 2005 as its Corporate Controller and has been its Chief Financial Officer since 2009.  DSS is an NYSE AMEX listed company.  We believe Mr. Jones should serve as a member of our board of directors based on his experience in the public and private accounting and finance sectors, and being Chief Financial Officer at a publically traded company (DSS), which provides our board of directors with insights into the areas of corporate finance, cash management, and SEC reporting requirements.
 
Term of Office
 
Directors are elected to hold office until the next annual meeting of shareholders and until their successors are elected and qualified.  Annual meetings of the shareholders, for the selection of directors to succeed those whose terms expire, are held at such time each year as designated by the Board of Directors.  Officers of the Company are elected by the Board of Directors, which is required to consider that subject at its first meeting after every annual meeting of shareholders.  Each officer holds office until his successor is elected and qualified or until his earlier resignation or removal.
 
Committees of the Board of Directors
 
We do not have any committees of the Board of Directors.  We consider a majority of our Board members (consisting of Messrs. Jones, Orlando, and White) to be independent directors under NYSE AMEX rules.
 
Corporate Governance
 
We do not have an audit committee, compensation committee or nominating committee. As we grow and evolve as a SEC registrant, our corporate governance structure is expected to be enhanced.

ITEM 11 - EXECUTIVE COMPENSATION
 
As of December 31, 2013 there was no employment agreement with our executive officer, Mr. Meyers.  The Company entered into an employment agreement with Mr. Meyers on January 7, 2014. We do not have key person life insurance on the lives of any of our executive officers.

The following table discloses compensation received by our Chief Executive Officer and acting Chief Financial Officer, and our former Executive Vice-President, also referred to herein as our “named executive officers,” for the fiscal years ended December 31, 2013and 2012.  Mr. Meyers earned a salary of $180,000 per annum for the calendar year 2013 of which $37,392 was paid during the year and $142,608 was earned but unpaid at December 31, 2013. No compensation was paid to or deferred for Mr. Meyers in the year ended 2012.  No compensation was paid or deferred for Mr. Buechler in the years ended 2013 or 2012.

 
23

 
 

Summary Compensation Table

Name and Principal Position
Year
 
Salary
   
Bonus
   
Stock Awards
   
Option Awards
   
All Other Compensation
   
Total
 
                                       
Raymond J Meyers,
2013 
 
$
180,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
180,000
 
Chief Executive Officer, acting Chief Financial Officer
2012
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
                                                   
Michael Buechler,
2013
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Former Executive Vice President
2012
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 


Outstanding Equity Awards at Fiscal Year-End

Name
 
Number of
Securities
Underlying
Unexercised
Options
 
Number of
Securities
Underlying
Unexercised
Options
 
Option
Exercise
Price
 
Option Expiration
Date
   
(Exercisable)
 
(Un-exercisable)
       
                 
Michael Buechler
 
333,334
 
166,666 (1)
 
$0.30
 
7/21/2016
Raymond Meyers
 
333,334
 
166,666 (1)
 
$0.30
 
7/21/2016

(1)
Vest pro-ratably in equal installments on July 22, 2012, July 22, 2013 and July 22, 2014, respectively.

Director Compensation

Our non-employee directors do not currently receive cash compensation for their services as directors although they are provided reimbursement for out-of-pocket expenses incurred in attending Board meetings.  In order to attract and retain qualified persons to our Board, in July 2011, we granted our non-employee directors stock options through our Equity Incentive Plan.  Each non-employee director received 500,000 stock options at a strike price of $0.30, vesting equally over a three year period, and with an expiration date of ten years from date of grant. Directors were not compensated during the year ended December 31, 2013 or 2012.

Equity Incentive Plan 
 
On July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”) and on July 26, 2011, shareholders holding a majority of shares of the Company approved, by written consent, the Plan. The Plan provides for the grant of options intended to qualify as “incentive stock options” and “non-statutory stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, together with the grant of bonus stock and stock appreciation rights, at the discretion of our Board of Directors.  Incentive stock options are issuable only to our eligible officers, directors and key employees. Non-statutory stock options are issuable only to our non-employee directors and consultants. Upon stockholder approval of the Plan, a total of 5,000,000 shares of common stock or appreciation rights may be issued under the Plan.  The Plan will be administered by our full Board of Directors.  Under the Plan, the Board will determine which individuals shall receive options, grants or stock appreciation rights, the time period during which the rights may be exercised, the number of shares of common stock that may be purchased under the rights and the option price.  As of December 31, 2013, the Company has 2,630,000 options outstanding under the Plan to employees, directors and outside consultants.
 
Limitation on Liability and Indemnification of Officers and Directors
 
Our Certificate of Incorporation provides that liability of directors to us for monetary damages is eliminated to the full extent provided by Delaware law. Under Delaware law, a director is not personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director’s duty of loyalty to us or our stockholders; (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) for authorizing the unlawful payment of a dividend or other distribution on our capital stock or the unlawful purchases of our capital stock; (iv) a violation of Delaware law with respect to conflicts of interest by directors; or (v) for any transaction from which the director derived any improper personal benefit.

 
24

 
 

The effect of this provision in our Certificate of Incorporation is to eliminate our rights and our stockholders’ rights (through stockholders’ derivative suits) to recover monetary damages from a director for breach of the fiduciary duty of care as a director (including any breach resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (v) above. This provision does not limit or eliminate our rights or the rights of our security holders to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s duty of care or any liability for violation of the federal securities laws.
  
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
As of the April 7, 2014, there are 1,353,068,182 shares of common stock outstanding.  This number and the table below do not include the 603,046,666 shares that are contingently issuable to U-Vend shareholders subject to certain earn-out provisions. The following table sets forth certain information regarding the beneficial ownership of the outstanding common shares as of April 7, 2014 by (i) each person who owns beneficially more than 5% of our outstanding common stock; (ii) each of our executive officers and directors; and (iii) all of our executive officers and directors as a group. The shares listed include as to each person any shares that such person has the right to acquire within 60 days from the date hereof. Except as otherwise indicated, each such person has sole investment and voting power with respect to such shares, subject to community property laws where applicable. The address of our executive officers and directors is in care of us at 1507 7th Street, #425, Santa Monica, CA 90401.

SECURITY OWNERSHIP OF MANAGEMENT
 
Name of Beneficial Owner
 
Common Shares Beneficially Owned
 
Percentage Beneficially Owned
 
Executive officers and directors
         
Raymond J. Meyers (1)
 
404,115,126
 
29.9
%
Paul Neelin (2)
 
34,554,937
 
2.6
%
Patrick White (3)
 
83,996,500
 
5.8
%
Philip Jones (1)
 
343,639
   
*
Alexander A. Orlando (1)
 
334,499
   
*
All executive officers and directors
         
as a group (five persons)
 
523,344,701
 
36.4
%
           
Greater than 5% stockholders
         
           
Bohlen Enterprises LLC (4)
 
71,779,422
 
5.3
%
2800 Middle Country Road
         
Lake Grove, NY 11755
         
           
Greg Hogarth (5)
 
133,333,340
 
9.3
%
312 Grays Road, PO Box 56013, Fiesta RPO2
         
Stoney Creek, Ontario, Canada L8G-5C9
         
           
           
*Less than 1%
         
 
(1)  Includes 333,334 shares issuable upon exercise of options.
(2)  Does not include Mr. Neelin’s percentage of any shares issuable under certain earn-out provisions of the Agreement.  The maximum number of shares issuable under the earn-out provisions is 603,046,666, with Mr. Neelin entitled to fifty percent of the final issuable total.  The remaining fifty percent of the shares issued under the earn-out provisions will be issued to Ms. Diane Hope.  This amount also does not include any shares that would be transferred to Mr. Neelin in the event of forfeiture by Dave Young.  Mr. Young has 34,000,758 issued and outstanding shares that are subject to a three year vesting schedule through 2017.  Any shares not vested are transferable to Mr. Neelin.
(3)  Includes 333,334 shares issuable upon exercise of options, 41,666,600 issuable upon exercise of warrants and 41,666,600 issuable upon conversion of convertible debt.
(4)  Includes 2,500,000 shares issuable upon exercise of warrants. Mr. Stephen Bohlen makes the investment decisions on behalf of Bohlen Enterprises LLC.
(5)  Includes 80,000,000 shares issuable upon exercise of warrants.

 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
The Company has a revolving credit agreement with Mr. Raymond Meyers, a shareholder and chief executive officer of the Company. This credit agreement allows borrowings up to $282,000, and has been amended to extend the agreement through June 30, 2014. The outstanding balance on the credit agreement bears interest at an annual rate of 6% above one year LIBOR (6.6% as of December 31, 2013), and is secured by all of the assets of the Company.

 
25

 
 

During the year ended December 31, 2013, Mr. Meyers converted $260,212 and $53,104, respectively of principal and accrued interest outstanding into 316,735,596 shares of the Company’s common stock. In accordance with the revolving credit agreement, the outstanding interest and principal on the dates on conversion were converted at a price per share that reflected the average lowest bid price of the Company’s common stock for the prior ten days.

As of December 31, 2013 the revolving credit line had no outstanding balance ($281,228 - December 31, 2012).  For the years ended December 31, 2013 and 2012, interest expense under this note amounted to $16,926 and $17,814, respectively. As of December 31, 2013, accrued interest amounted to $2,934 ($39,112 - 2012), which is included in accrued expenses in the accompanying balance sheet. Under the terms of the agreement the Company is required to comply with various covenants. In the event of default and upon the expiration of any applicable cure period, Mr. Meyers, in his sole discretion may request repayment in the form of newly issued common stock of the Company.

Director Independence
 
As our common stock is currently traded on the OTC Bulletin Board, we are not subject to the rules of any national securities exchange which require that a majority of a listed company’s directors and specified committees of the board of directors meet independence standards prescribed by such rules.  However, we consider a majority of our Board members (consisting of Messrs. Orlando, White and Jones) to be independent directors under NYSE AMEX rules.

ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees
 
Audit fees consist of fees for professional services rendered for audit and review services of the Company’s consolidated financial statements included in the Company’s annual financial statements and review of financial statements included on Form 10-Q, and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements.  The aggregate fees billed or to be billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C. for audit and review services for the fiscal years ended December 31, 2013 and 2012 were $44,000 and $36,000, respectively.  For the year ended December 31, 2013 and 2012, the Company was not required to have an audit of its internal controls over financial reporting.

Audit Related Fees
 
The aggregate fees billed for other related services, which are associated with filing requirements related to the Company’s acquisition of U-Vend, by our principal accountant, Freed Maxick CPAs, P.C. for the years ended December 31, 2013 and 2012 were $3,500 and $0, respectively.
 
Tax Fees
 
The aggregate fees billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C., for preparation of tax returns, including, in 2013, the tax treatment related to the sale of LegalStore.com during the years ended December 31, 2013 and 2012 were $6,750 and $3,900, respectively.  
 
All Other Fees
 
The aggregate fees billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C., during the years ended December 31, 2013 and 2012 were $0 and $0, respectively.

We do not have an Audit Committee. Our Board of Directors pre-approves all auditing services and permissible non-audit services provided to us by our independent registered public accounting firm. All fees listed above were pre-approved in accordance with this policy.

 
26

 
 

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

The Exhibits listed below designated by an * are incorporated by reference to the filings by Internet Media Services, Inc. under the Securities Act of 1933 or the Securities and Exchange Act of 1934, as indicated. All other exhibits are filed herewith.

3.1
Certificate of Incorporation dated March 26, 2007, as amended by Certificate of Amendment dated October 4, 2010 (incorporated by reference to the Company’s Form 8-K (file number 333-165972) filed on October 7, 2010).
*
     
3.2
By-laws, as amended (incorporated by reference to exhibit 3.2 to the Company’s Registration Statement on Form S-1 (file number 333-165972) filed on April 9, 2010).
*
     
10.1
Premise lease agreement dated January 13, 2010 with SC Sunrise LLC for 1434 6th. Street, Unit 9, Santa Monica, CA (incorporated by reference from Company’s Registration Statement on Form S-1 (file number 333-165972) dated April 9, 2010).
*
     
10.2
Agreements dated October 8, 2009 with Document Security Systems (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated June 30, 2010).
*
     
10.3
Credit Facility Agreement, dated April 8, 2010, between the Company and Raymond Meyers (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated June 30, 2010).
*
     
10.4
Security Agreement, dated April 8, 2010, between the Company and Raymond Meyers (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated June 30, 2010).
*
     
10.5
Secured Promissory Note, dated April 8, 2010, between the Company and Raymond Meyers (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated June 30, 2010).
*
     
10.6
Secured Promissory Note 2, dated June 30, 2010, between the Company and Raymond Meyers (incorporated by reference from Company’s Registration Statement on Form S-1/A (file number 333-165972) dated July 26, 2010).
*
     
10.7
Form of Warrant to Purchase Common Stock of Internet Media Services, Inc. dated March 17, 2011 (file number 333-165972).
*
     
10.8
Securities Purchase Agreement by and between Internet Media Services, Inc. and Asher Enterprises, Inc. dated August 26, 2011 (file number 333-165972, filed September 8, 2011).
*
     
10.9
Securities Purchase Agreement by and between Internet Media Services, Inc. and Asher Enterprises, Inc. dated October 3, 2011 (file number 333-165972, filed October 17, 2011).
*
     
10.10
Securities Purchase Agreement by and between Internet Media Services, Inc. and Asher Enterprises, Inc dated December 1, 2011 (file number 333-165972, filed December 16, 2011).
*
     
10.11
Asset Purchase Agreement by and between Internet Media Services, Inc. and Enthusiast Media holdings, Inc. dated March 7, 2012 (file number 333-165972, filed March 13, 2012).
*
     
10.12
Form of Internet Media Services, Inc. 2011 Equity Incentive Plan dated July 26, 2011 (file number 333-165972, filed July 27, 2011).
*
     
10.13
Stock Purchase Agreement by and among Western Principal Partners LLC, Internet Media Services, Inc and Raymond Meyers dated March 8, 2013 (file number 333-165972, filed March 19, 2013).
*
     
10.14
September 17, 2013 Debt Conversion Agreement between Internet Media Services, Inc. and Raymond Meyers (file number 333-165972) dated September 23, 2013)
*
     
10.15
Form of Senior Convertible Note – Cobrador Multi-Strategy Partners, LP (file number 333-165972) dated November 19, 2013)
*
     
10.16
Securities Purchase Agreement – Cobrador Multi-Strategy Partners, LP (file number 333-165972) dated November 19, 2013)
*
     
10.17
Form of Equipment Lease – Automated Retail Leasing Partners (file number 333-165972) dated November 19, 2013).
*
     
10.18
Form of Warrant Agreement – Cobrador Multi-Strategy partners, LP (file number 333-165972) dated November 19, 2013).
*
     
10.19
Employment Agreement between Internet Media Services, Inc and Raymond Meyers (file number 333-165972) dated January 13, 2014).
*
     
10.20
November 30, 2012 Audited Financial Statements of U-Vend Canada, Inc. (file number 333-165972) dated January 13, 2014).
*
     
10.21
August 31, 2013 Unaudited Interim Financial Statements of U-Vend Canada, Inc. (file number 333-165972) dated January 13, 2014).
*
     
10.22
November 30, 2013 Audited Financial Statements of U-Vend Canada, Inc (file number 333-165972) dated March 21, 2014)
*
     
10.23
Summary of Unaudited Pro Forma Combined Financial Statements (file number 333-165972) dated March 21, 2014)
*
     
10.24
January 7, 2014 Agreement Concerning Exchange of Securities by and among Internet Media Services, Inc. and U-Vend Canada Inc. and the Security Holders of U-Vend Canada, Inc.
**
     
10.25
January 7, 2014 Employment Agreement between Internet Media Services, Inc and Paul Neelin.
**
     
10.26
April 4, 2013 National Securities Financial Advisor Agreement between U-Vend, Inc. and National Securities Corp.
**
     
10.27
Form of Warrant Agreements between National Securities Corp. and Internet Media Services, Inc.
**
     
10.28
Form of Warrant Agreement between Automated Retail Leasing Partners and Internet Media Services, Inc.
**
     
31.1
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14(a) and15d-14(a) (filed herewith.)
 
     
32.1
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. 1350 (furnished herewith.)
 
     
*
Previously filed
 
     
**
Filed herewith
 

 
27

 
 

INTERNET MEDIA SERVICES, INC.

CONTENTS

 
Page
   
Report of Independent Registered Public Accounting Firm
F-2
   
Consolidated Financial Statements:
 
   
Balance Sheets
F-3
   
Statements of Operations
F-4
   
Statements of Stockholders’ Deficiency
F-5
   
Statements of Cash Flows
F-6
   
Notes to the Consolidated Financial Statements
F-7 – F-16


 
F-1

 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Board of Directors and Stockholders
Internet Media Services, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheets of Internet Media Services, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders' deficiency, and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Internet Media Services, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that Internet Media Services, Inc. and Subsidiaries will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, Internet Media Services, Inc. and Subsidiaries has suffered recurring losses from operations since inception and, as of December 31, 2013, has negative working capital and a stockholders’ deficiency. These factors raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ FREED MAXICK CPAs, P.C.

Buffalo, New York
April 15, 2014
 
 
 

 
F-2

 
 
 
INTERNET MEDIA SERVICES, INC.
CONSOLIDATED BALANCE SHEETS

   
As of
 
             
   
December 31,
   
December 31,
 
   
2013
   
2012
 
ASSETS
           
             
Current assets:
           
Cash
  $ 14,620     $ 1,262  
Prepaid expenses and other assets
    4,114       10,169  
Receivable from U-Vend, Canada, Inc.
    162,536       -  
Current assets of discontinued operations
    -       116,460  
Total current assets
    181,270       127,891  
                 
Deferred financing costs, net
    16,333       -  
                 
Non-current assets of discontinued operations
    -       99,092  
                 
Total assets
  $ 197,603     $ 226,983  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
               
                 
Current liabilities:
               
Accounts payable
  $ 35,192     $ 39,026  
Accrued expenses
    28,032       61,340  
Accrued salary - officer
    142,608       -  
Note payable - director
    50,000       -  
Senior convertible notes, net of discount of $143,751
    56,249       -  
Convertible notes payable
    -       280,034  
Revolving note from related party
    -       281,228  
Current liabilities of discontinued operations
    -       156,912  
Total current liabilities
    312,081       818,540  
                 
Warrant liabilities
    214,609       -  
                 
Commitments and contingencies (Note 9)
    -       -  
                 
Stockholders' deficiency:
               
Common stock, $.001 par value, 600,000,000 shares
               
authorized, 489,255,193 shares issued and outstanding (24,637,893 - 2012)     489,255       24,638  
Additional paid-in capital
    955,920       770,786  
Accumulated deficit
    (1,774,262 )     (1,386,981 )
Total stockholders' deficiency
    (329,087 )     (591,557 )
                 
Total liabilities and stockholders' deficiency
  $ 197,603     $ 226,983  
 
 
The accompanying notes are an integral part of the financial statements 

 
F-3

 
 
 
INTERNET MEDIA SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

   
For the Years Ended
 
             
   
December 31, 2013
   
December 31, 2012
 
             
Revenue
  $ -     $ -  
                 
Operating expenses:
               
Salaries  and benefits
    220,421       73,716  
Professional fees
    65,780       47,219  
Other
    53,684       121,571  
      339,885       242,506  
                 
Operating loss
    (339,885 )     (242,506 )
                 
Other income (expenses):
               
Loss from change in fair value of notes payable
    -       (105,009 )
Amortization of debt discount and deferred financing costs
    (63,417 )     -  
Interest expense
    (35,882 )     (37,440 )
Gain on extinguishment of debt
    31,090       -  
      (68,209 )     (142,449 )
                 
Loss before income taxes
    (408,094 )     (384,955 )
                 
Income tax provision
    (2,200 )     (4,185 )
                 
Loss from continuing operations
    (410,294 )     (389,140 )
                 
Discontinued operations:
               
Gain from disposal of discontinued operations
    3,839       -  
Net income (loss) from discontinued operations
    19,174       (2,858 )
Write-down of assets associated with a discounted component, net of income tax effect
    -       (35,000 )
      23,013       (37,858 )
                 
Net loss
  $ (387,281 )   $ (426,998 )
                 
Net loss from continuing operations per share- basic and diluted
  $ (0.01 )   $ (0.02 )
                 
Net income (loss) from discontinued operations per share- basic and diluted
    0.00       (0.00 )
                 
Net loss per share - basic and diluted
  $ (0.01 )   $ (0.02 )
                 
Weighted average common shares
               
outstanding - basic and diluted
    71,373,884       24,313,958  
 
 
The accompanying notes are an integral part of the financial statements 

 
F-4

 
 
 
INTERNET MEDIA SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

               
Additional
         
Total
 
   
Shares
   
Common
   
Paid-in
   
Accumulated
   
Stockholders'
 
   
Outstanding
   
Stock
   
Capital
   
Deficit
   
Deficiency
 
                               
Balance at December 31, 2011
    23,821,000     $ 23,821     $ 685,317     $ (959,983 )   $ (250,845 )
                                         
Issuance of common stock and warrants for cash
    200,000       200       10,300       -       10,500  
Stock-based compensation expense
    -       -       24,796       -       24,796  
Shares issued upon conversion of convertible notes and accrued interest
    616,893       617       50,373       -       50,990  
Net loss
    -       -       -       (426,998 )     (426,998 )
Balance at December 31, 2012
    24,637,893       24,638       770,786       (1,386,981 )     (591,557 )
                                         
Stock-based compensation expense
    -       -       23,496       -       23,496  
Shares issued upon conversion of convertible notes and accrued interest
    464,617,300       464,617       130,533       -       595,150  
Beneficial conversion feature on senior convertible notes
    -       -       31,105       -       31,105  
Net loss
    -       -       -       (387,281 )     (387,281 )
Balance at December 31, 2013
    489,255,193     $ 489,255     $ 955,920     $ (1,774,262 )   $ (329,087 )
 
 
The accompanying notes are an integral part of the financial statements

 
F-5

 
 

INTERNET MEDIA SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
For the Years Ended
 
             
   
December 31, 2013
   
December 31, 2012
 
Cash flows from operating activities:
           
Net loss
  $ (387,281 )   $ (426,998 )
(Income) loss from discontinued operations
    (23,013 )     37,858  
Adjustments to reconcile net loss to net cash used by operating activities:
               
Stock based compensation
    23,496       24,796  
Amortization of debt discount and deferred financing costs
    63,417       -  
Gain on extinguishment of debt
    (31,090 )     -  
Change in provisions for deferred tax liability
    -       541  
Impairment of property and equipment
    -       38,200  
Loss from change in fair value of notes payable
    -       105,009  
(Increase) decrease in assets:
               
Prepaid expenses and other assets
    6,055       (222 )
Increase in liabilities:
               
Accounts payable and accrued expenses
    48,851       53,410  
Accrued salary - officer
    142,608       -  
Net cash used by continuing operations
    (156,957 )     (167,406 )
Net cash provided by discontinued operations
    7,653       90,621  
Net cash used by operating activities
    (149,304 )     (76,785 )
                 
Cash flows from investing activities:
               
Advances to U-Vend Canada, Inc.
    (116,822 )     -  
Net proceeds from sale of LegalStore.com
    74,000       -  
Net cash used by investing activities
    (42,822 )     -  
                 
Cash flows from financing activities:
               
Proceeds from sale of common stock
    -       10,500  
Proceeds from senior convertible notes, net of financing costs
    176,500       -  
Proceeds from notes payable - director
    50,000       -  
Net (repayments) borrowings on revolving note from related party
    (21,016 )     66,739  
Net cash provided by financing activities
    205,484       77,239  
                 
Net increase in cash
    13,358       454  
                 
Cash - beginning of year
    1,262       808  
                 
Cash - end of year
  $ 14,620     $ 1,262  
                 
Cash paid for :
               
Income taxes
  $ 2,200     $ 3,400  
Interest
  $ 1,711     $ -  
                 
Non-cash financing activities:
               
Note payable and accrued interest converted to shares of common stock
  $ 599,051     $ 50,990  
Debt discount related to warrant liability and beneficial conversion feature
  $ 200,000     $ -  
Derivative warrant liability issued for equipment leasing
  $ 45,714     $ -  
 
The accompanying notes are an integral part of the financial statements

 
F-6

 
 

INTERNET MEDIA SERVICES, INC.

NOTES TO THE CONSOILDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business On January 7, 2014, Internet Media Services, Inc. (“Company”) entered into an Exchange of Securities Agreement (“Agreement”) by and between ourselves, U-Vend Canada, Inc. and the shareholders of U-Vend Canada, Inc.   U-Vend Canada, Inc. together with its wholly owned subsidiary, U-Vend USA LLC (collectively, U-Vend), is in the business of developing, marketing and distributing co-branded self-serve electronic kiosks, mall/airport co-branding islands, and digital advertising solutions throughout North America.  As of December 31, 2013, U-Vend owned and operated 33 kiosks in the greater Chicago, IL area and markets products supplied by its co-branding partners. U-Vend expects to place 15 additional kiosks into service early in the second quarter of 2014.  Pursuant to the Agreement, we have acquired all of the outstanding shares of U-Vend in exchange for 466,666,667 shares of our common stock.  U-Vend Canada, Inc. will also have the ability to earn up to an additional 603,046,666 shares of our common stock subject to certain earn-out provisions more fully described in the Agreement.  The Agreement was approved by a written consent by the majority of the Company's stockholders and by the Company’s Board of Directors. (See Note 10 Subsequent Events)

On October 8, 2009, the Company completed an acquisition in the legal vertical market through the purchase of the assets and assumption of certain liabilities of LegalStore.com.  LegalStore.com is an Internet based company that primarily sells legal supplies and legal forms.   Despite sustained efforts from 2009 through 2012 to bring to market our customer relationship solutions product offerings, the Company was unable to secure the needed funding.  As a result, in early 2013 the Company elected to change the strategic direction of the Company.  On March 13, 2013, the Company entered into a stock sale agreement with Western Principal Partners LLC (“WPP”), a California Limited Liability Company. Pursuant to the Agreement, WPP purchased from the Company all the outstanding capital stock of the Company’s wholly-owned subsidiary, LegalStore.com, a Delaware Corporation. LegalStore.com was operating the Company’s e-commerce business.  The Agreement was approved by a written consent by the majority of the Company's stockholders.  In consideration of the sale, WPP agreed to pay to the Company total consideration of $210,000 including assumption of operating liabilities. Operating liabilities included, but are not limited to existing operating agreements, trade payables and certain tax obligations. The fair value of consideration received for the stock of LegalStore.com was less than the carrying value of the assets. As a result, an impairment charge was estimated as on December 31, 2012 in the amount of $35,000, net of income tax effect and a gain of $3,839 was recorded during the year ended December 31, 2013 (See Note 2 Discontinued Operations).
 
In accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 205-20 “Discontinued Operations-Other Presentation Matters” results of LegalStore.com operations are presented as discontinued operations on the consolidated balance sheets, statements of operations and statements of cash flows.
 
Management's plans
 
The accompanying consolidated financial statements have been prepared on a going concern basis. As shown in the accompanying consolidated financial statements, the Company incurred a loss of approximately $387,000 during the year ended December 31, 2013, has incurred accumulated losses totaling approximately $1,774,000, has a stockholders’ deficiency of approximately $329,000 and has a working capital deficit of approximately $131,000 at December 31, 2013. These factors, among others, indicate that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
The Company needs to raise additional financing to fund the Company’s operations for fiscal year 2014, to allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis. Should additional financing not be available, the Company will have to negotiate with its lenders to extend the repayment dates of its indebtedness. There can be no assurance, however, that the Company will be able to successfully restructure its debt obligations in the event it fails to obtain additional financing.

As discussed above, on January 7, 2014, Internet Media Services, Inc. entered into an Exchange of Securities Agreement with U-Vend Canada, Inc., and the shareholders of U-Vend. The Company believes the merger with U-Vend will provide it with business operations and also necessary working capital.  The Company is in discussion for raising additional capital to execute on its current business plans.  There is no assurance that future financing arrangements will be successful or that the operating results of U-Vend will yield sufficient cash flow to execute the Company’s business plans or satisfy its obligations.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  

Principles of Consolidation   - The consolidated financial statements include the accounts of Internet Media Services, Inc. and the discontinued operations of its wholly-owned subsidiary (LegalStore.com, Inc.). All intercompany balances and transactions have been eliminated in consolidation. (See Note 10 Subsequent Events)

 
F-7

 
 

Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and be based on events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating, therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained.

Income Taxes - The Company accounts for income taxes with the recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carryforwards. Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized in the immediate future.

The Company reviews tax positions taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain tax position. The Company did not have any material unrecognized tax benefit at December 31, 2013 or 2012. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2013 and 2012, the Company recognized no interest and penalties.

Common Shares Issued - As of December 31, 2013 there were not adequate authorized shares to satisfy the current obligations upon conversion or exercise issued by the Company. Common shares issued are recorded based on the value of the shares issued or consideration received, including cash, services rendered or other non-monetary assets, whichever is more readily determinable.

Preferred Stock Authorized - The Company has authorization for   “blank check” preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to common stock. As of December 31, 2013 and 2012, there are 10,000,000 shares of preferred stock authorized, and no shares issued or outstanding.

Fair Value of Financial Instruments -   Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, derivative warrant liabilities, revolving note from related party, convertible notes payables, and senior convertible notes payable. Fair values were assumed to approximate carrying values for these financial instruments, except for derivative warrant liabilities, convertible notes payable and senior convertible notes payable, since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the revolving note from related party approximates the carrying value of the obligations based on these instruments bearing interest at variable rates consistent with the current rates available to the Company. The senior convertible notes payable are recorded at face amount, net of any unamortized discounts, and have an estimated fair value of approximately $210,000 based on the underlying shares the notes can be converted into. The fair value was estimated using the trading price on December 31, 2013, since the underlying shares are trading in an active, observable market, the fair value measurement qualifies as a Level 1 input. The convertible notes payable are measured at fair value each reporting period, as further discussed in Note 4. The determination of the fair value of the derivative warrant liabilities includes unobservable inputs and is therefore categorized as a Level 3 measurement, as further discussed in Note 6.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 “Fair Value Measurement” establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

·
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

·
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

·
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Earnings Per Common Share - The Company presents basic and diluted earnings per share. Basic earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued. In a loss year, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.

 
F-8

 
 

As of December 31, 2013, there were not adequate authorized shares to satisfy the current obligations upon conversion or exercise issued by the Company. As of December 31, 2013, there were 1,604,270,805 (36,704,425 - 2012)  shares potentially issuable under convertible debt agreements, options, and warrants that could dilute basic earnings per share in the future that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the year.

Subsequent to December 31, 2013, the Company issued approximately 819,000,000 shares related to its acquisition of U-Vend, including advisor fee shares, approximately 603,000,000 contingently issuable shares in conjunction with the U-Vend acquisition, and instruments convertible into approximately 3,300,000,000 shares (see Notes 3, 9, 10). Of the convertible instruments issued subsequent to year end, 43,000,000 were converted to common shares.

Derivative Financial Instruments - The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Certain warrants the Company has issued have a “down round provision” and further, the Company does not have adequate shares authorized to accommodate the exercise of all outstanding equity instruments. As a result, the warrants are classified as derivative liabilities for accounting purposes. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and then is revalued at each reporting date, with changes in fair value reported in the consolidated statement of operations.

Share-Based Compensation Expense - The Company accounts for stock-based compensation under the provisions of FASB ASC 718 “Stock Compensation.” This statement requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period in which the employee is required to provide service in exchange for the award, which is usually the vesting period.

Reclassifications -   Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to current period presentation. These classifications had no effect on the results of operations or cash flows for the periods presented.

NOTE 2. DISCONTINUED OPERATIONS

On March 13, 2013, the Company entered into a stock sale agreement (“Agreement”) dated March 8, 2013 with Western Principal Partners LLC (“WPP”), a California Limited Liability Company. Pursuant to the Agreement, WPP purchased from the Company all the outstanding capital stock of the Company’s wholly-owned subsidiary, LegalStore.com, a Delaware Corporation. LegalStore.com was operating the Company’s e-commerce business.  The Agreement was approved by a written consent by the majority of the Company's stockholders.  In consideration of the sale, WPP paid the Company $95,000 at close and assumed certain operating liabilities. Operating liabilities included, but are not limited to existing operating agreements, trade payables and certain tax obligations. At December 31, 2012, the fair value of consideration received for the stock of LegalStore.com was less than the carrying value of the assets. As a result, an impairment charge was recorded on December 31, 2012 in the amount of $35,000, net of income tax effect. The Company used the proceeds for payment of its payables and for working capital purposes.

As a result of the board of directors committing to a plan to sell LegalStore.com prior to December 31, 2012, the related assets and liabilities are considered to be held for sale and are presented as discontinued operations on the balance sheet as of December 31, 2012. In accordance with FASB ASC 205-20 “Discontinued Operations” the Company has presented the results of LegalStore.com operations as discontinued operations in the accompanying statements of operations and statements of cash flows for the years ended December 31, 2013 and 2012.
 
The following table sets forth information regarding calculation of the gain recognized from the sale of LegalStore.com:

Net cash proceeds after brokerage fee of $21,000
  $ 74,000  
LegalStore.com liabilities assumed
    136,241  
Total purchase price
    210,241  
         
LegalStore.com assets
    206,402  
         
Gain on sale
  $ 3,839  

The following table sets forth the carrying amounts of the major classes of assets and liabilities aggregated in discontinued operations in the consolidated balance sheet as of December 31, 2012:

Cash
  $ 379  
Account receivable, net
    26,641  
Inventory
    89,440  
Current assets of discontinued operations
  $ 116,460  
         
Property and equipment, net
  $ 1,532  
Other intangibles, net
    97,560  
Noncurrent assets of discontinued operations
  $ 99,092  
         
Accounts payable
  $ 92,684  
Accrued expenses
    64,228  
    $ 156,912  


 
F-9

 
 

Discontinued Operations for the years ended December 31, 2013 and 2012 were as follows:

   
December 31, 2013
   
December 31, 2012
 
             
Revenue
  $ 95,241     $ 511,283  
Cost of revenue
    40,535       276,617  
Gross profit
    54,706       234,666  
Operating expenses
    35,532       237,524  
Net income (loss) from discontinued operations
    19,174       (2,858 )
Write-down of assets associated with a discontinued component, net of taxes
    -       (35,000 )
Gain on disposal of discontinued operations
    3,839       -  
    $ 23,013     $ (37,858 )

NOTE 3. SENIOR CONVERTIBLE NOTES

In August 2013, the Company entered into a Securities Purchase Agreement ("SPA") dated June 18, 2013 with Cobrador Multi-Strategy Partners, LP ("Investor") pursuant to which the Investor will provide an aggregate of $400,000 financing through senior convertible notes and warrants. The financing and the related terms are dependent on several conditions including the Company's merger with U-Vend, which was completed on January 7, 2014 (see Note 10), and the Company effecting certain changes in its capital structure.
 
During the third and fourth quarters of 2013, the Company issued five senior convertible notes ("Senior Convertible Notes") to the Investor in the aggregate principal amount of $200,000 along with Series A and Series B warrants ("Warrants") to the Investor to acquire shares of common stock in the Company. The SPA, Senior Convertible Notes, Warrants and other ancillary agreements with the Investor are referred to as the “Financing Agreement.” Each Senior Convertible Note under the Financing Agreement is for a term of one year and bears interest at 7% payable in cash or shares of the Company's common stock, and provides for an increase in the rate of interest if there is a default as defined in the Financing Agreement.
 
The Investor can convert $150,000 of outstanding principal into shares of the Company's common stock at a conversion price of $0.001 per share, and $50,000 of outstanding principal amounts into shares of the Company’s common stock at $0.00025 per share, subject to an adjustment with a minimum adjusted conversion price of $0.00015 per share. The conversion price is subject to certain anti-dilution protection; for example, if the Company issues shares for a consideration less than the applicable conversion price, the conversion price is reduced to such amount. The Investor agreed to restrict its ability to convert the Senior Convertible Note and receive shares of the Company if the number of shares of common stock beneficially held by the lender and its affiliates in the aggregate after such conversion exceeds 4.99% of the then outstanding shares of common stock. However, this limitation does not preclude the holder from converting notes payable into common stock after selling shares owned into the market. As of December 31, 2013, the Senior Convertible Notes were convertible into 350,000,000 shares of common stock, without taking into account the 4.99% limitation on ownership.

Through December 31, 2013, the Company issued the Investor an aggregate 525 million Series A warrants and 525 million Series B warrants.  The Series A warrants have exercise prices ranging from $0.001 to $0.00025 and the Series B warrants have exercise prices ranging from $0.0012 to $0.0003.  Series A warrants expire in 15 months from the date of issuance and series B warrants expire in five years from the date of issuance.
 
The Company allocated the $200,000 of proceeds received from the Senior Convertible Notes based on the computed fair values of the Senior Convertible Note and Warrants issued. The Company valued the Warrants at fair value of $168,895 after reflecting additional debt discount and warrant liability. Accordingly, the resulting fair value allocated to the debt component of $31,105 was used to measure the intrinsic value of the embedded conversion option of the Senior Convertible Notes, which resulted in a beneficial conversion feature of $31,105 recorded to additional paid-in capital. The value of the beneficial conversion feature was limited to the amount of the proceeds allocated to the debt component of the Senior Convertible Notes. The aggregate amounts allocated to the warrants and beneficial conversion feature of $200,000 were recorded as a debt discount at the date of issuance and are being amortized to interest expense over the term of Senior Convertible Notes under the interest method of accounting. The initial carrying value was $0 after the debt discounts. As of December 31, 2013, the Senior Convertible Notes had a face value of $200,000 net of unamortized debt discounts of $143,751, resulting in a carrying amount of $56,249. During the year ended December 31, 2013, $56,249 of discount has been amortized and recorded as interest expense.

The Warrants issued have a “down round provision” and further, the Company does not have adequate shares authorized to accommodate the exercise of all outstanding equity instruments. As a result, the Warrants are classified as derivative liabilities for accounting purposes. The derivative warrant liabilities are marked to market at each balance sheet date. The fair value of these warrants was measured at $168,895 upon issuance and at December 31, 2013. The fair value of the warrants was determined based on the consideration of the enterprise value of the Company, the limited market of the shares issuable under the agreement and modeling of the Black Scholes valuations using multiple volatility assumptions. Due to certain unobservable inputs in the fair value calculations of the warrants, derivative warrant liabilities are classified as Level 3.

 
F-10

 
 

Financing costs of $23,500 paid or payable to third parties associated with the Senior Convertible Notes are included in deferred financing costs on the balance sheet, and are amortized to interest expense over the one year term of the respective Senior Convertible Note.

The Company and the Investor have entered into a registration rights agreement covering the registration of common stock underlying the Senior Convertible Notes the Warrants. The Company is required to file a registration statement within 120 days after completion of the acquisition of U-Vend and meet an effectiveness deadline of 165 days after the closing date of the acquisition, 195 days if the Securities and Exchange Commission provides comment. If the Company fails to comply with the terms of the registration rights agreement, the Investor would be entitled to an amount in cash equal to one percent (1%) of the Investor’s original principal amount stated in each Senior Convertible Note on the date of the failure and monthly thereafter until failure is cured and all registration rights have been paid. Management believes the registration statement will be filed and effective timely, and as of December 31, 2013, the Company has not accrued any amount for potential registration rights penalties.

Subsequent to December 31, 2013, the Company borrowed an additional $125,000 at a conversion price of $0.00025 pursuant to the SPA and issued the Investor 750 million Series A warrants with an exercise price of $0.00025 per share and 750 million Series B warrants with an exercise price of $0.0003 per share under previously described terms.

NOTE 4. NOTES PAYABLE

During 2011, the Company issued three Convertible Promissory Notes (“Notes”) in the aggregate principal amount of $117,500. The Notes, which are due on various dates between May and September, 2012, bear interest at the rate of 8% per annum, with a provision for additional interest under certain circumstances, are unsecured and are convertible into shares of the Company's common stock at the election of lender at any time after 180 days from the date of the Note issuance at a conversion price equal to a 41% discount (for two Notes) or 42% discount (for one Note) to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The conversion price is subject to certain anti-dilution protection; for example, if the Company issues shares for a consideration less than the applicable conversion price, the conversion price is reduced to such amount. The lender agreed to restrict its ability to convert the Note and receive shares of the Company if the number of shares of common stock beneficially held by the lender and its affiliates in the aggregate after such conversion exceeds 4.99% of the then outstanding shares of common stock. On March 2, 2012, the lender elected to partially convert one Note in the principal amount of $8,000 into shares of the Company stock and was issued 338,983 shares of common stock by the Company pursuant to the terms of the Note. The fair value of the note converted and shares issued was $16,949.

As of December 31, 2012, the outstanding principal of the three Notes amounted to $109,500 and the maximum number of common shares the note could be converted into based on 4.99% of the outstanding shares was 1,229,431 shares. As of December 31, 2012 the three convertible promissory notes had become due and payable along with any unpaid interest on various dates between May and September 2012. The aggregate outstanding principal of $109,500 plus unpaid interest had not been paid on the maturity dates. As a result, the three convertible promissory notes are considered to be in default and therefore, due and payable in an amount equal to the Default Sum as defined in the agreement. The Default Sum is equal to 150% of the sum of the unpaid principal, unpaid interest and unpaid default interest, which amounted to $193,954 in aggregate as of December 31, 2012. Further, the default interest rate for the three convertible notes during the default period was increased to 22%. On November 7, 2012, the Company received a demand notice requesting payment for the Default Sum owed together with all unpaid interest. During the year ended December 31, 2013, the lender elected to convert all Convertible Promissory Notes principal amount, plus default sum and accrued interest aggregating to $285,734 into shares of the Company’s common stock. As a result, 147,881,704 shares of common stock were issued by the Company in 2013 pursuant to the terms of the Convertible Promissory Notes.

As of December 31, 2013 all outstanding principal on the Notes had been satisfied through conversion to common stock. All outstanding accrued interest on the Notes was converted into common stock during the first quarter of 2014.

Under FASB ASC 480 “Distinguishing Liabilities from Equity,” the Company determined the Notes are liabilities reported at fair value because the Notes will be convertible into a variable number of common shares at fixed monetary amount, known at inception. The Notes are to be subsequently measured at fair value at each reporting period, with changes in fair value being recognized in earnings. The fair value of the Notes is measured by calculating possible outcomes of conversion to common shares and repayment of the Notes, then weighting the probability of each possible outcome according to management’s estimates. Management has determined that the most likely outcome will be conversion at the default sum and the fair value of the Notes is equal to the estimated fair value of equity securities the Company will issue upon conversion. The fair value measurement is classified as a Level 3 in the valuation hierarchy. The following table is a roll forward of the Notes fair value:

 
Fair value as of December 31, 2011
  $ 223,224  
Changes in fair value and adjustment for default provision
    105,009  
Adjustments for conversion
    (48,199 )
Fair value as of December 31, 2012
    280,034  
Adjustments for conversion
    (280,034 )
Fair value as of December 31, 2013
  $ -  

 
F-11

 
 

NOTE 5. REVOLVING NOTE FROM RELATED PARTY

Revolving Credit Agreement
The Company has a revolving credit agreement with Mr. Raymond Meyers, a shareholder and chief executive officer of the Company. This credit agreement allows borrowings up to $282,000, and has been amended to extend the agreement through June 30, 2014. The outstanding balance on the credit agreement bears interest at an annual rate of 6% above one year LIBOR (6.6% as of December 31, 2013), and is secured by all of the assets of the Company.

In September 2013, Mr. Meyers requested payment of $86,591 of the outstanding revolving credit balance in newly issued common stock of the Company, which the Company’s Board of Director’s approved.  The terms of the conversion were established and approved by the Company’s Board of Directors to be the average lowest bid price of the Company’s common stock on the prior ten business days.  On September 17, 2013, the repayment amount of $86,591was converted to 36,260,596 shares.  On December 16 and December 30, 2013, Mr. Meyers converted $80,746 and $145,980, respectively of principal and accrued interest outstanding to shares of the Company’s common stock in accordance with the revolving credit agreement.  The outstanding interest and principal at these dates were converted at $0.0008 per share, which reflected the average lowest bid price of the Company’s common stock for the prior ten days as prescribed in the agreement.  As a result, an aggregate of 280,475,000 common shares were issued to Mr. Meyers in connection with these conversions.

As a result of the conversions, as of December 31, 2013 the revolving credit line had no outstanding balance ($281,228 - December 31, 2012).  Future borrowings wil be at the descretion of Mr. Meyers.  For the years ended December 31, 2013 and 2012, interest expense under this note amounted to $16,926 and $17,814, respectively. As of December 31, 2013, accrued interest amounted to $2,934 ($39,112 - 2012), which is included in accrued expenses in the accompanying balance sheet. Under the terms of the agreement the Company is required to comply with various covenants. In the event of default and upon the expiration of any applicable cure period, Mr. Meyers, in his sole discretion may request repayment in the form of newly issued common stock of the Company.

Accrued Salary – Mr. Meyers
During 2013, the Company recorded salary expense for Mr. Meyers in the amount of $15,000 per month, as approved by the Company’s board of directors.  As of December 31, 2013, $142,608 of this salary was unpaid and recorded as accrued expenses on the balance sheet.  Mr. Meyers did not receive a salary in fiscal year 2012 and no amount was accrued at December 31, 2012.

Note Payable – Director
On August 29, 2013, the Company borrowed from an individual who is a director of the Company, $50,000 pursuant to a promissory note.  The promissory note matures in one year from the date of the borrowing and bears interest at 8% per annum.  For the year ended December 31, 2013, interest expense under this note amounted to $1,340 ($0 - 2012).  As of December 3, 2013, accrued interest expense amounted to $1,000 ($0 - 2012).  Interest is paid monthly.

NOTE 6. STOCKHOLDERS’ DEFICIENCY

On September 12, 2013 and December 19, 2013, the majority of the shareholders of the Company approved in two written consents, an amendment to the Company’s Certificate of Incorporation, increasing the number of authorized shares of common stock from 100,000,000 to 300,000,000, then from 300,000,000 to 600,000,000, respectively.  The increase in authorized shares was affected pursuant to a Certificate of Amendment to the Certificate of Incorporation filed with the Secretary of State of the State of Delaware.  

As of December 31, 2013, there were not adequate authorized shares to satisfy the current obligations upon conversion or exercise of all equity instruments issued by the Company.  As a result, the all warrants have been measured at fair market value and are presented in the balance sheet as liabilities. Warrants issued in and prior to 2012 are significantly out of the money and diluted therefore, management has deemed the fair value of these to be de minimis. The fair value of warrants issued in 2013 are determined based on the consideration of the enterprise value of the Company, the limited market of the shares issuable under the agreement and modeling of the Black Scholes valuations using multiple volatility assumptions. Due to certain unobservable inputs in the fair value calculations of the warrants, derivative warrant liabilities are classified as Level 3.

During the year ended December 31, 2013, the Company issued 1,050,000,000 warrants to the Senior Convertible Notes holder (see Note 3) and 197,250,000 warrants to the Lessor provided an equipment lease financing line jointly to U-Vend and the Company.

On March 21, 2012, the Company sold in a private placement 50,000 shares of its common stock and warrants to acquire 50,000 shares of the Company stock at an exercise price of $0.15 for total proceeds of $5,000. The warrants have a contractual term of three years. The fair value of warrants issued in the private placement is minor. In April 2012, the Company sold in a private placement 100,000 shares of its common stock and warrants to acquire 100,000 shares of the Company stock at an exercise price of $0.15 for total proceeds of $5,000. The warrants have a contractual term of three years. The fair value of warrants issued in the private placement is minor. In December 2012, the Company sold in a private placement 50,000 shares of its common stock for $500.

 
F-12

 
 

The fair value of derivative warrant liabilities is as follows:
 
Fair value as of December 31, 2012
  $ -  
Derivative warrant liabilities issued
    214,609  
Change in fair value
    -  
Fair value as of December 31, 2013
  $ 214,609  

Outstanding warrant securities consist of the following at December 31, 2013:

         
Exercise
   
   
Warrants
   
Price
 
Expiration
 
2011 Common share private placement warrants
   
2,500,000
   
$
0.30
 
March 2018
2011 Convertible notes warrants
   
16,667
   
$
0.30
 
June 2014
2012 Private placements warrants
   
150,000
   
$
0.15
 
March - April 2015
2013 Series A warrants Senior Convertible Notes
   
225,000,000
   
$
0.001
 
October-November 2014
2013 Series A warrants Senior Convertible Notes
   
300,000,000
   
$
0.00025
 
January 2014 - March 2015
2013 Series B warrants Senior Convertible Notes
   
225,000,000
   
$
0.0012
 
June-August 2018
2013 Series B warrants Senior Convertible Notes
   
300,000,000
   
$
0.0003
 
October - December 2018
2013 Lease obligation with U-Vend
   
197,250,000
   
$
0.006
 
November 2016
     
1,249,916,667
           

Outstanding warrant securities consist of the following at December 31, 2012:
 
   
Warrants
   
Exercise Price
 
Expiration
2011 Common share private placement warrants
   
2,500,000
   
$
0.30
 
March 2018
2011 Convertible Notes warrants
 
 
16,667
   
$
0.30
 
June 2014
2012 Private Placements warrants
 
 
150,000
   
$
0.15
 
March - April 2015
     
2,666,667
           

NOTE 7. EQUITY INCENTIVE PLAN

On July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”) and on July 26, 2011, shareholders holding a majority of shares of the Company approved, by written consent, the Plan. The total number of shares of common stock available for issuance under the Plan is 5,000,000 shares. Awards may be granted to employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its related companies. Such options may be designated at the time of grant as either incentive stock options or nonqualified stock options. Stock based compensation includes expense charges related to all stock-based awards. Such awards include options, warrants and stock grants. Generally, the Company issues stock options that vest over three years and expire in 5 to 10 years.

The Company records shares based payments under the provisions of FASB ASC 718 "Compensation - Stock Compensation." Stock based compensation expense is recognized over the requisite service period based on the grant date fair value of the awards. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

The Company estimated the expected volatility based on data used by its peer group of public companies. The expected term was estimated using the simplified method. The risk-free interest rate assumption was determined using the equivalent U.S. Treasury bonds yield over the expected term. The Company has never paid any cash dividends and does not anticipate paying any cash dividends in the foreseeable future. Therefore, the Company assumed an expected dividend yield of zero.

A summary of all stock option activity for the years ended December 31, 2013 and 2012 is as follows:

         
Weighted Average
 
Weighted Average
   
Aggregate Intrinsic
   
Options
   
Exercise Price
 
Contractual life
   
 Value
  Outstanding at December 31, 2011
   
3,015,000
    $
0.27
         
  Options cancelled
   
(355,000)
     
0.10
         
  Outstanding at December 31, 2012
   
2,660,000
     
0.29
         
  Options cancelled
   
(30,000)
     
0.10
         
  Outstanding at December 31, 2013
   
2,630,000
     
0.29
 
5.7 years
 
$
-
  Exercisable at December 31, 2013
   
1,753,333
    $
0.29
 
5.7 years
 
$
-


 
F-13

 
 

The Company did not grant any options during the years ended December 31, 2013 or 2012 and no options were exercised during the years ended December 31, 2013 or 2012. The fair value of options that vested during the year ended December 31, 2013 amounted to $23,400. The Company recorded stock compensation expense for options vesting during the years ended December 31, 2013 and 2012 of $23,496 and $24,796, respectively.

At December 31, 2013, there was approximately $10,000 of unrecognized compensation cost related to non-vested options. This cost is expected to be recognized over a weighted average period of approximately 0.5 years.

NOTE 8. INCOME TAXES

Following is a summary of the components giving rise to the income tax provision (benefit) for the years ended December 31, 2013 and 2012:

   
2013
   
2012
 
Current:
           
   Federal
 
$
-
   
$
-
 
   State
   
2,200
     
3,644
 
Total current
   
2,200
     
3,644
 
                 
Deferred
               
   Federal
   
(128,472
)
   
(119,282
)
   State
   
(15,983
)
   
(37,514
)
Total deferred
   
(144,455
)
   
(156,796
)
Less increase in allowance
   
144,455
     
157,337
 
Net deferred
   
-
     
541
 
                 
Total income tax provision
 
$
2,200
   
$
4,185
 

Individual components of deferred taxes are as follows as of December 31, 2013 and 2012:

   
2013
   
2012
 
Deferred tax assets (liabilities):
           
 Net operating loss carryforwards
  $ 499,696     $ 419,720  
 Depreciable and amortizable assets
    -       20,938  
 Prepaid expense
    (888 )     (1,001 )
 Fair market value adjustments
    -       52,580  
 Stock based compensation
    15,769       9,437  
Beneficial conversion feature
    (8,623 )     -  
 Bad debt reserve
    -       766  
 Accrued salary
    54,519       -  
           Total
    560,473       502,440  
 Less valuation allowance
    (560,473 )     (502,440 )
Net deferred tax (liabilities)
  $ -     $ -  

The Company has approximately $1,308,000 in net operating loss carryforwards (“NOLs”) available to reduce future taxable income. These carryforwards begin to expire in year 2029. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in the future and utilize the NOLs before they expire, the Company has recorded a valuation allowance to fully offset the NOLs, and the total net deferred tax assets, as well.
 
Internal Revenue Code Section 382 ("Section 382") imposes limitations on the availability of a company's net operating losses and other corporate tax attributes as ownership changes occur.  As a result of the historical equity transactions of the Company, a Section 382 ownership change may have occurred and a study will be required to determine the date of the ownership change, if any.  The amount of the Company's net operating losses and other tax attributes incurred prior to the ownership change may be limited based on the Company's value.  A full valuation allowance has been established for the Company's deferred tax assets, including net operating losses and other corporate tax attributes.  Accordingly, any limitation resulting from Section 382 application is note expected to have a material effect on the balance sheets or statements of operations of the Company.

During the years ended December 31, 2013 and 2012 the Company had no unrecognized tax benefits.  The Company’s policy is to recognize interest accrued and penalties related to unrecognized tax benefits in tax expense.

The Company files income tax returns in the U.S. federal jurisdiction and in the states of California and New York. The tax years 2010-2013 generally remain open to examination by these taxing authorities. In addition, the 2009 tax year is still open for the state of California.

The differences between United States statutory Federal income tax rate and the effective income tax rate in the accompanying consolidated statements of operations are as follows:

 
2013
 
2012
       
Statutory United States Federal rate
34.0%
 
34.0%
State income taxes net of federal benefit
2.2%
 
3.6%
Change in valuation reserves
(36.2%)
 
(40.5%)
Permanent differences
(0.6%)
 
(1.5%)
Other
-
 
3.3%
       
Effective tax rate (provision)
(0.6%)
 
(1.1%)


 
F-14

 
 

NOTE 9. COMMITMENTS AND CONTINGENCIES

Capital Lease Obligation with U-Vend
Prior to the merger with U-Vend described in Note 10, the Company and U-Vend jointly entered into a term sheet dated October 15, 2013 with a financing company (“Lessor”) to provide for equipment lease financing in the aggregate amount of $1 million. The Company and U-Vend will use this financing to acquire certain equipment to be used in the direct income producing activities of U-Vend.

In accordance with FASB ASC 405-40 “Obligations Resulting from Joint and Several Liability Arrangements,” these lease obligations have not been recorded by the Company based on the expectation that U-Vend will use the leased assets in its operations and satisfy the payment obligations. However, the Company would be responsible for the lease payments should U-Vend default on the lease obligation and fail to make payments.

Per the terms of the agreement with the Lessor, the Company and U-Vend will be obligated to pay $57,200 annually and also buy the equipment from the Lessor for approximately $86,000 in November 2016. The following schedule provides minimum future rental payments required under this lease obligation which have a remaining non-cancelable lease term in excess of one year:
 
2014
  $ 57,200  
2015
    57,200  
2016
    52,434  
Total minimum lease payments
    166,834  
Guaranteed residual value
    86,191  
    $ 253,025  

The Lessor was induced to extend the equipment lease line with a grant of 197,250,000 common stock warrants with a term of three years and an exercise price of $0.0006 per share. The warrant was determined to have a fair value of $45,174, which was recorded as a discount to the capital lease obligation carried on the books of U-Vend. The warrant obligation has been included in derivative warrant liabilities and receivable from U-Vend Canada, Inc. on the Company’s balance sheet at December 31, 2013.
 
The Company and the Lessor have entered into a registration rights agreement covering the registration of 110% of common stock underlying the Warrants. The Company is required to file a registration statement within 45 days after completion of the acquisition of U-Vend and meet an effectiveness deadline of 90 days after the closing date of the acquisition, 120 days if the Securities and Exchange Commission provides comment.  If the Company fails to comply with the terms of the registration rights agreement, the Lessor would be entitled to an amount in cash equal to one percent (1%) of the Lessor’s original lease amount on the date of the failure and monthly thereafter until failure is cured and all registration rights have been paid. Management does not believe that the potential registration rights penalties related to this agreement will be significant.

Subsequent to December 31, 2103, the Company and U-Vend assumed additional lease obligations for leased equipment of approximately $100,000 and issued 47,562,211 warrants with an exercise price of $0.001 and expire three years from the date of issuance. As a result of the additional lease financing, U-Vend will place 15 kiosks into service during the second quarter of 2014.

NOTE 10. SUBSEQUENT EVENTS

Merger with U-Vend Canada, Inc.
On January 7, 2014, the Company entered into an Exchange of Securities Agreement with U-Vend Canada, Inc.  Pursuant to the agreement, the Company acquired all the outstanding shares of U-Vend in exchange for 466,666,667 shares of the Company’s common stock. Certain shareholders of U-Vend Canada, Inc. will also have the ability to earn up to an additional 603,046,666 shares of the Company’s common stock subject to certain earn-out provisions based on targeted revenue achievement in 2014 and 2015.  Effective on January 7, 2104, as a result of the merger, U-Vend became a wholly owned subsidiary of the Company. In connection with the merger, the Company issued on the closing date, its securities to U-Vend’s shareholders in exchange for the common stock owned by U-Vend’s shareholders as follows: an aggregate of 466,666,667 shares of the Company’s common stock, par value $0.001 per share. In addition, the Company issued an aggregate of 352,422,184 shares of Common Stock and 822,787,600 warrants to financial advisors as compensation for their services in connection with the transaction contemplated by the merger agreement.
 
U.S. GAAP, requires that for each business combination, one of the combining entities shall be identified as the acquirer and the existence of a controlling financial interest shall be used to identify the acquirer in a business combination.  In a business combination effected primarily by exchanging equity interests, the acquirer is usually is the entity that issues its equity interests. In accordance with FASB ASC 805 “Business Combinations”, if a business combination has occurred, but it is not clear which of the combining entities is the acquirer, U.S. GAAP requires considering additional factors in making that determination.  These factors include the relative voting rights of the combined entity, the composition of the governing body of the combined entity, the composition of senior management in the combined entity and the relative size of the combining entities.
 
Based on the aforementioned and after taking in consideration all the relevant facts and circumstances, management came to the conclusion that Internet Media Services, Inc., as the legal acquirer was also the accounting acquirer in the transaction.  As a result, the merger will be accounted for as a business combination in accordance with the FASB ASC 805.  Under the guidance, consideration, including contingent consideration, the assets and liabilities of U-Vend are recorded at their estimated fair value on the date of the acquisition.  The excess of the purchase price over the estimated fair values is recorded as goodwill, if any. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a bargain purchase gain on acquisition is recorded.
 

 
F-15

 
 

U-Vend is in the business of developing, marketing and distributing various self-serve electronic kiosks and mall/airport co-branded islands throughout North America. U-Vend has four market segments; Environmental, Retail, Service and Mall/Airport Islands with a primary focus on Environmental and Retail.  U-Vend seeks to place its kiosks in high-traffic host locations such as big box stores, restaurants, malls, airports, casinos, universities, and colleges.  Currently, U-Vend owns and operates their kiosks, but intends to also provide the kiosks, through a distributor relationship, to the entrepreneur wanting to own their own business.
 
The Company is still in the process of determining the fair value of the consideration paid, which will include shares, contingent shares and the effective settlement of amounts owed to the Company by U-Vend, as well as the fair value of the assets acquired and liabilities assumed. These assets and liabilities are expected to include working capital items, fixed assets, separately identifiable intangible assets, capital lease obligations, convertible notes payable, deferred taxes and goodwill, if any. This evaluation will be completed during the measurement period following the acquisition.

The unaudited pro forma condensed results for the consolidated statement of operations from continued operations for the years ended December 31, 2013 and 2012 of the combined entity had the acquisition date been January 1, 2012 are as follows:

   
2013
   
2012
 
             
Revenue
  $ 23,592     $ 5,094  
Operating loss
  $ (683,615 )   $ (345,120 )
Net loss
  $ (808,354 )   $ (509,160 )
Basic and diluted earnings per share
  $ (0.00 )   $ (0.00 )

Reverse Stock Split
On January 7, 2014, the holders of more than 50 percent of the outstanding shares of the Company’s common stock voted in favor of a corporate resolution authorizing the reverse split of its common stock (“Reverse Split”) on the basis of one share of common stock for up to each 200 shares of common stock outstanding, on the effective date of the Reverse Split.  The Board of Directors shall determine the exact number of shares to be split and the timing of the Reverse Split, in its sole discretion.  The Reverse Split may be declared as effective by the Company’s Board of Directors at any time before June 30, 2014, subject to FINRA and other regulatory approvals.  This split has not been reflected in the share amounts presented throughout this document.

 
F-16

 
 

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
   
INTERNET MEDIA SERVICES, INC.
     
April 15, 2014
By: 
/s/ Raymond Meyers
   
Raymond Meyers
Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer )

In accordance with Section 13 or 15(d) of the Exchange Act of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     
April 15, 2014
By:
/s/ Philip Jones 
   
Philip Jones
Director
     
April 15, 2014
By:
/s/ Raymond Meyers 
   
Raymond Meyers
Chief Executive Officer and Director
(Principal Executive Officer and Principal Financial Officer )
     
April 15, 2014
By:
/s/ Paul Neelin
   
Paul Neelin
Chief Operating Officer and Director
     
April 15, 2014
By:
/s/ Alexander Orlando 
   
Alexander Orlando
Director
     
April 15, 2014
By:
/s/ Patrick White 
   
Patrick White
Director
 
 
44



Exhibit 10.24
 
AGREEMENT

CONCERNING THE EXCHANGE OF SECURITIES

BY AND AMONG

INTERNET MEDIA SERVICES, INC.

AND

U-VEND CANADA INC. AND
THE SECURITY HOLDERS OF U-VEND CANADA INC.




 
 

 
 
INDEX
   
Page
ARTICLE I – Exchange of Securities
 
1
1.1
Issuance of Securities
1
1.2
Issuance of Additional Shares
1
1.3
Exemption from Registration
 
2
ARTICLE II – Representations and Warranties of U-Vend
 
2
2.1
Organization
2
2.2
Capital
3
2.3
Subsidiaries
3
2.4
Directors and Officers
3
2.5
Financial Statements
3
2.6
Absence of Changes
3
2.7
Absence of Undisclosed Liabilities
4
2.8
Tax Returns
4
2.9
Investigation of Financial Condition
4
2.10
Intellectual Property Rights
4
2.11
Compliance with Laws
4
2.12
Litigation
4
2.13
Authority
4
2.14
Ability to Carry Out Obligations
4
2.15
Full Disclosure
5
2.16
Assets and Liabilities
5
2.17
Material Contracts
5
2.18
Indemnification
5
2.19
Criminal or Civil Acts
5
2.20
Restricted Securities
 
5
ARTICLE III – Representations and Warranties of Internet Media
 
5
3.1
Organization
6
3.2
Capital
6
3.3
Subsidiaries
6
3.4
Directors and Officers
6
3.5
Financial Statements
6
3.6
Absence of Changes
6
3.7
Absence of Undisclosed Liabilities
6
3.8
Tax Returns
6
3.9
Investigation of Financial Condition
7
3.10
Intellectual Property Rights
7
3.11
Compliance with Laws
7
3.12
Litigation
7
3.13
Authority
7

 
i

 


3.14
Ability to Carry Out Obligations
7
3.15
Full Disclosure
7
3.16
Assets and Liabilities
7
3.17
Material Contracts
8
3.18
Indemnification
8
3.19
Criminal or Civil Acts
8
3.20
Bulletin Board Trading Status
 
8
ARTICLE IV – Covenants Prior to the Closing Date
 
8
4.1
Investigative Rights
8
4.2
Conduct of Business
8
4.3
Confidential Information
9
4.4
Notice of Non-Compliance
 
9
ARTICLE V – Conditions Precedent to Internet Media’s Performance
 
10
5.1
Conditions
10
5.2
Accuracy of Representations
10
5.3
Performance
10
5.4
Absence of Litigation
10
5.5
Officer’s Certificate
10
5.6
Corporate Action
 
10
ARTICLE VI – Conditions Precedent to U-Vend’s Performance
 
10
6.1
Conditions
10
6.2
Accuracy of Representations
11
6.3
Performance
11
6.4
Absence of Litigation
11
6.5
Officer’s Certificate
11
6.6
Directors of Internet Media
11
6.7
Officers of Internet Media
 
11
ARTICLE VII – Closing
 
11
7.1
Closing
 
11
ARTICLE VIII – Covenants Subsequent to the Closing Date
 
12
8.1
Registration and Listing
12
8.2
Stock Issuances
12
8.3
Unissued Shares
12

 
ii

 


ARTICLE IX – Miscellaneous
 
12
9.1
Captions and Headings
12
9.2
No Oral Change
12
9.3
Non-Waiver
12
9.4
Time of Essence
13
9.5
Entire Agreement
13
9.6
Choice of Law
13
9.7
Counterparts
13
9.8
Notices
13
9.9
Binding Effect
13
9.10
Mutual Cooperation
13
9.11
Finders
13
9.12
Announcements
13
9.13
Expenses
14
9.14
Survival of Representations and Warranties
14
9.15
Exhibits
14
9.16
Termination, Amendment and Waiver
14


EXHIBITS

 
Allocation of Securities
Exhibit
 1.1
 
Subscription Agreement
Exhibit
 1.2
 
Schedule of U-Vend Material Contracts
Exhibit
 2.17
 
Financial Statements of U-Vend
Exhibit
 2.5
 
Financial Statements of Internet Media
Exhibit
 3.5
 
 
 
iii

 

AGREEMENT

THIS AGREEMENT (“Agreement”) is made this 23 day of December, 2013, by and between INTERNET MEDIA SERVICES, INC., a Delaware corporation (“Internet Media”), U-VEND CANADA INC., a Canadian corporation (“U-Vend”), and the security holders of U-Vend (the “U-Vend Security Holders”) who are listed on Exhibit 1.1 hereto and have executed Subscription Agreements in the form attached in Exhibit 1.2, hereto.

WHEREAS, Internet Media desires to acquire all of the issued and outstanding securities of U-Vend from the U-Vend Security Holders in exchange for newly issued unregistered shares of common stock of Internet Media;

WHEREAS, U-Vend desires to assist Internet Media in acquiring all of the issued and outstanding securities of U-Vend pursuant to the terms of this Agreement; and

WHEREAS, all of the U-Vend Security Holders, by execution of Exhibit 1.2 hereto, agree to exchange all 12,385,081 common shares and special shares (hereinafter referred to as the “U-Vend Shares”) they hold in U-Vend for 466,666,667 common shares of Internet Media on the date the Agreement is closed (the “Closing Date”).  In addition, this Agreement provides for the issuance of additional Shares by Internet Media upon the occurrence of certain events described in paragraph 1.2, below.

NOW, THEREFORE, in consideration of the mutual promises, covenants and representations contained herein, the parties hereto agree as follows:

ARTICLE I

Exchange of Securities

1.1            Issuance of Securities .  Subject to the terms and conditions of this Agreement, Internet Media agrees to issue and exchange 12,240,081 fully paid and non-assessable unregistered shares of Internet Media’s $.001 par value common stock (the “Internet Media Shares”) for all 466,666,667 issued and outstanding no par value U-Vend Shares held by the U-Vend Security Holders.  All Internet Media Shares will be issued directly to the U-Vend Security Holders on the Closing Date, pursuant to the schedule set forth in Exhibit 1.1.

1.2            Issuance of Additional Shares.   In the event that the gross revenue, as reported by Internet Media’s auditors pursuant to U.S. generally accepted accounting practices (“US GAAP”), realized by Internet Media during the calendar year 2014 (the “First Earnout Period”) exceeds $1,000,000, then Internet Media shall issue to Paul Neelin and Diane Hope and no other U-Vend securities holder, and allocated to them on an equal basis, an additional 301,523,333 shares of its common stock.  In addition, in the event that gross revenue as reported by Internet Media’s auditors, pursuant to U.S. GAAP, exceeds $2,000,000 during the calendar year 2015 (the “Second Earnout Period”), then Internet Media shall issue to Paul Neelin and Diane Hope and no other U-Vend securities holder, and allocated to them on an equal basis, an additional 301,523,333 shares of its common stock.

 
 

 


In the event Internet Media’s gross revenue equals not less than 80% nor more than 99% of the $1,000,000 and $2,000,000 gross revenue amounts described above, then Internet Media shall issue to Paul Neelin and Diane Hope and no other U-Vend securities holder, and allocated to them on an equal basis, additional shares of its common stock computed by determining the percentage of gross revenue realized relative to the target gross revenue of $1,000,000 and/or $2,000,000 for the First and Second Earnout Periods.  By way of example, if revenue during the First Earnout Period is $800,000 (80% of $1,000,000), then an additional 241,218,666 shares of Internet Media common stock shall be issued to Paul Neelin and Diane Hope and no other U-Vend securities holder, and allocated to them on an equal basis.

Any shares issued that are less than the full 301,523,333 shares that may be earned during the First Earnout Period shall be added to the 310,523,333 shares that may be issued during the Second Earnout Period so long as the shortfall in gross revenue during the First Earnout Period is added to the amount of gross revenue required during the Second Earnout Period.  By way of example, if gross revenue during the First Earnout Period is $1,200,000, then the gross revenue requirement during the Second Earnout Period shall be $1,800,000.

At the time Internet Media’s aggregated gross revenue, as defined in this section, generated in the First Earnout Period and the Second Earnout Period exceed $3,000,000, Paul Neelin and Diane Hope will have earned the additional shares referenced in this Section 1.2.

This Section 1.2, Issuance of Additional Shares, is conditional on Internet Media providing access to a minimum level of financing needed to achieve the listed revenue targets.  In the event that the gross revenue targets stated in this Section 1.2 are not obtained and a minimum level of financing was not provided to U-Vend by IMS during the respective earnout period, then at the end of each earnout period, U-Vend shall receive the additional shares specified in this section 1.2.

All dollar amounts set forth in this Agreement are in U.S. dollars.

1.3            Exemption from Registration .  The parties hereto intend that all Internet Media common stock to be issued to the U-Vend Security Holders shall be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) and/or Regulation D of the Act and rules and regulations promulgated thereunder.  In furtherance thereof, each of the U-Vend Security Holders will execute and deliver to Internet Media on the Closing Date a copy of the Subscription Agreement set forth in Exhibit 1.2 hereto.

ARTICLE II

Representations and Warranties of U-Vend

U-Vend hereby represents and warrants to Internet Media that:

2.1      Organization . U-Vend is a corporation duly organized, validly existing and in good standing under the laws of Ontario, Canada, has all necessary corporate powers to own its properties and to carry on its business as now owned and operated by it, and is duly qualified to do business and is in good standing in each of the states where its business requires qualification.

 
2

 


2.2            Capital .  The capital stock of U-Vend consists of an aggregate of 12,385,081 shares of common stock and -0- shares of special common stock divided into five classes (A,B,C,D and E).  All shares of common stock in all classes are equal to each other with respect to the number of shares to be issued by Internet Media to the U-Vend Security Holders.  All of the outstanding common stock of U-Vend is duly and validly issued, fully paid and non-assessable.  Outside of the stock obligations listed in Exhibits 1.1 and 1.2, there are no additional outstanding subscriptions, options, rights, warrants, debentures, instruments, convertible securities or other agreements or commitments obligating U-Vend to issue any additional shares of its capital stock of any class.

2.3            Subsidiaries .  U-Vend has one wholly-owned subsidiary, U Vend USA LLC (“U-Vend USA”).  U-Vend does not have any other subsidiaries or own any interest in any other enterprise.  All U-Vend references herein include the operations of U-Vend USA LLC.

2.4            Directors and Officers .  The names and titles of the directors and officers of U-Vend as of the date of this Agreement are as follows:

Name
 
Position
Paul Neelin
 
Chief Executive Officer, Secretary, Treasurer and sole director
David Young
 
Vice President of Sales

2.5            Financial Statements .  Exhibit 2.5 hereto consists of the audited financial statements of U-Vend and its wholly-owned subsidiary, U-Vend USA LLC for the 12 month periods ending November, 30, 2011 and 2012, the unaudited financial statements of U-Vend for the nine months ended August 31, 2013, and an unaudited balance sheet as of the Closing Date (the “U-Vend Financial Statements”). The U-Vend Financial Statements have been prepared in accordance with generally accepted U.S. accounting principles and practices consistently followed by U-Vend throughout the period indicated, and fairly present the financial position of U-Vend as of the date of the balance sheet included in the U-Vend Financial Statements and the results of operations for the period indicated.  There are no material omissions or non-disclosures in the U-Vend Financial Statements.

2.6            Absence of Changes .  Since September 1, 2013, there has not been any material change in the financial condition or operations of U-Vend, except as contemplated by this Agreement.  As used throughout this Agreement, “material” means:  Any change or effect (or development that, insofar as can be reasonably foreseen, is likely to result in any change or effect) that causes substantial increase or diminution in the business, properties, assets, condition (financial or otherwise) or results of operations of a party.  Taken as a whole, material change shall not include changes in national or international economic conditions or industry conditions generally; changes or possible changes in statutes and regulations applicable to a party; or the loss of employees, customers or suppliers by a party as a direct or indirect consequence of any announcement relating to this transaction.

 
3

 


2.7            Absence of Undisclosed Liabilities .  As of December 1, 2013, U-Vend and U-Vend USA did not have any material debt, liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that is not reflected in the U-Vend Financial Statements.

2.8            Tax Returns .  U-Vend and U-Vend USA will file all tax returns required by Canadian and U.S. law within 60 days from the Closing Date and have not paid all taxes, assessments and penalties due and payable but will so within 60 days from the Closing Date. The provisions for taxes, if any, reflected in Exhibit 2.5 are adequate for the periods indicated.  There are no present disputes as to taxes of any nature payable by U-Vend or U-Vend USA.

2.9            Investigation of Financial Condition .  Without in any manner reducing or otherwise mitigating the representations contained herein, Internet Media, its legal counsel and accountants shall have the opportunity to meet with U-Vend’s accountants and attorneys to discuss the financial condition of U-Vend during reasonable business hours and in a manner that does not interfere with the normal operation of U-Vend’s business.  U-Vend shall make available to Internet Media all books and records of U-Vend, provided, however, that U-Vend will be under no obligation to provide any information subject to confidentiality provisions or waive any privilege associated with any such information.

2.10      Intellectual Property Rights . U-Vend owns or has the right to use all trademarks, service marks, trade names, copyrights and other intellectual property material to its business.
 
 
2.11            Compliance with Laws .  To the best of U-Vend’s knowledge, U-Vend and U-Vend USA have complied with, and are not in violation of, applicable Canadian and U.S. statutes, laws and regulations, except where such non-compliance would not have a material adverse impact upon its business or properties.

2.12            Litigation .  U-Vend and U-Vend USA are not a defendant in any suit, action, arbitration or legal, administrative or other proceeding, or governmental investigation which is pending or, to the best knowledge of U-Vend, threatened against or affecting U-Vend and U-Vend USA or their business, assets or financial condition.  U-Vend and U-Vend USA are not in default with respect to any order, writ, injunction or decree of any federal, state, local or foreign court, department, agency or instrumentality applicable to it.  U-Vend and U-Vend USA are not engaged in any material litigation to recover monies due to it.

2.13            Authority .  The Board of Directors of U-Vend has authorized the execution of this Agreement and the consummation of the transactions contemplated herein, and U-Vend has full power and authority to execute, deliver and perform this Agreement, and this Agreement is a legal, valid and binding obligation of U-Vend and is enforceable in accordance with its terms and conditions.  By execution of Exhibit 1.2, all of the U-Vend Security Holders have agreed to and have approved the terms of this Agreement.

 
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2.14            Ability to Carry Out Obligations .  To the best of U-Vend’s knowledge, the execution and delivery of this Agreement by U-Vend and the performance by U-Vend of its obligations hereunder in the time and manner contemplated will not cause, constitute or conflict with or result in (a) any breach or violation of any of the provisions of or constitute a default under any license, indenture, mortgage, instrument, article of incorporation, bylaw, or other agreement or instrument to which U-Vend is a party, or by which it may be bound, nor will any consents or authorizations of any party other than those hereto be required, (b) an event that would permit any party to any agreement or instrument to terminate it or to accelerate the maturity of any indebtedness or other obligation of U-Vend, or (c) an event that would result in the creation or imposition of any lien, charge or encumbrance on any asset of U-Vend.

2.15            Full Disclosure .  None of the representations and warranties made by U-Vend herein or in any exhibit, certificate or memorandum furnished or to be furnished by U-Vend, or on its behalf, contains or will contain any untrue statement of material fact or omit any material fact the omission of which would be misleading.

2.16            Assets and Liabilities .  U-Vend’s and U-Vend USA’s assets and liabilities are fully included in Exhibit 2.5 and are not subject to any claims or encumbrances except as indicated in Exhibit 2.5.

2.17            Material Contracts .  U-Vend and U-Vend USA do not have any material contracts, except as set forth in Exhibit 2.17.

2.18            Indemnification .  U-Vend agrees to indemnify, defend and hold Internet Media harmless against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including interest, penalties and reasonable attorney fees asserted by third parties against Internet Media which arise out of, or result from (i) any breach by U-Vend in performing any of its covenants or agreements under this Agreement or in any schedule, certificate, exhibit or other instrument furnished or to be furnished by U-Vend under this Agreement, (ii) a failure of any representation or warranty in this Article II or (iii) any untrue statement made by U-Vend in this Agreement.

2.19            Criminal or Civil Acts. For the period of five years prior to the execution of this Agreement, no executive officer, director or principal stockholder of U-Vend or U-Vend USA has been convicted of a felony crime, filed for personal bankruptcy, been the subject of a Commission or FINRA judgment or decree, or is currently the subject to any investigation in connection with a felony crime or Commission or FINRA proceeding.

2.20            Restricted Securities .  U-Vend and the U-Vend Security Holders, by execution of this Agreement and of Exhibit 1.2, acknowledge that all of the Internet Media Shares issued by Internet Media are restricted securities and none of such securities may be sold or publicly traded except in accordance with the provisions of the Act.

ARTICLE III

Representations and Warranties of Internet Media

 
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Internet Media represents and warrants to U-Vend that:

3.1            Organization .  Internet Media is a corporation duly organized, validly existing and in good standing under the laws of Delaware, has all necessary corporate powers to carry on its business, and is duly qualified to do business and is in good standing in each of the states where its business requires qualification.

3.2            Capital .  The authorized capital stock of Internet Media currently consists of 600,000,000 shares of $.001 par value common stock, of which 293,676,054 shares of common stock are issued and outstanding, and -0- shares of $0.001 par value preferred stock, none of which are outstanding.  All of Internet Media’s outstanding securities are duly and validly issued, fully paid and non-assessable. There are no outstanding subscriptions, options, rights, warrants, debentures, instruments, convertible securities or other agreements or commitments obligating Internet Media to issue any additional shares of its capital stock of any class, except as listed in the Internet Media Financial Statements.

3.3            Subsidiaries .  Internet Media does not have any subsidiaries or own any interest in any other enterprise.

3.4            Directors and Officers .  The names and titles of the directors and officers of Internet Media are:  Raymond J. Meyers, Chief Executive Officer, Chief Financial Officer and Director; and Directors Michael Buechler, Alexander Orlando, Patrick White and Phillip Jones.

3.5            Financial Statements .  Exhibit 3.5 hereto consists of the audited financial statements of Internet Media for the year ended December 31, 2012 and the unaudited financial statements of Internet Media for the nine months ended September 30, 2013 (the “Internet Media Financial Statements”).  The Internet Media Financial Statements have been prepared in accordance with generally accepted accounting principles and practices consistently followed by Internet Media throughout the periods indicated, and fairly present the financial position of Internet Media as of the date of the balance sheets included in the Internet Media Financial Statements and the results of operations for the periods indicated.  There are no material omissions or non-disclosures in the Internet Media Financial Statements.

3.6            Absence of Changes .  Since September 30, 2013, there has not been any material change in the financial condition or operations of Internet Media, except as contemplated by this Agreement.

3.7            Absence of Undisclosed Liabilities .  As of September 30, 2013, Internet Media did not have any material debt, liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that is not reflected in the Internet Media Financial Statements.

 
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3.8            Tax Returns .  Within the times and in the manner prescribed by law, Internet Media has filed all federal, state and local tax returns required by law and has paid all taxes, assessments and penalties due and payable.

3.9            Investigation of Financial Condition .  Without in any manner reducing or otherwise mitigating the representations contained herein, U-Vend, its legal counsel and accountants shall have the opportunity to meet with Internet Media’s accountants and attorneys to discuss the financial condition of Internet Media.  Internet Media shall make available to U-Vend all books and records of Internet Media.

3.10            Intellectual Property Rights .  Internet Media does not have any patents, trademarks, service marks, trade names, copyrights or other intellectual property rights.

3.11            Compliance with Laws .  Internet Media has complied with, and is not in violation of, applicable federal, state or local statutes, laws or regulations including federal and state securities laws.

3.12            Litigation .  Internet Media is not a defendant in any suit, action, arbitration, or legal, administrative or other proceeding, or governmental investigation which is pending or, to the best knowledge of Internet Media, threatened against or affecting Internet Media or its business, assets or financial condition.  Internet Media is not in default with respect to any order, writ, injunction or decree of any federal, state, local or foreign court, department, agency or instrumentality applicable to it.  Internet Media is not engaged in any material litigation to recover monies due to it.

3.13            Authority .  The Board of Directors of Internet Media has authorized the execution of this Agreement and the transactions contemplated herein, and Internet Media has full power and authority to execute, deliver and perform this Agreement, and this Agreement is the legal, valid and binding obligation of Internet Media, and is enforceable in accordance with its terms and conditions.

3.14            Ability to Carry Out Obligations .  The execution and delivery of this Agreement by Internet Media and the performance by Internet Media of its obligations hereunder will not cause, constitute or conflict with or result in (a) any breach or violation of any of the provisions of or constitute a default under any license, indenture, mortgage, instrument, article of incorporation, bylaw or other agreement or instrument to which Internet Media is a party, or by which it may be bound, nor will any consents or authorization of any party other than those hereto be required, (b) an event that would permit any party to any agreement or instrument to terminate it or to accelerate the maturity of any indebtedness or other obligation of Internet Media, or (c) an event that would result in the creation or imposition of any lien, charge or encumbrance on any asset of Internet Media.

3.15            Full Disclosure .  None of the representations and warranties made by Internet Media herein, or in any exhibit, certificate or memorandum furnished or to be furnished by Internet Media or on its behalf, contains or will contain any untrue statement of material fact or omit any material fact the omission of which would be misleading.

 
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3.16            Assets and Liabilities .  Internet Media’s assets and liabilities are set forth in Exhibit 2.5.
 
 
3.17            Material Contracts .  Internet Media has no material contracts.

3.18            Indemnification .  Internet Media agrees to indemnify, defend and hold U-Vend harmless against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including interest, penalties and reasonable attorney fees asserted by third parties against U-Vend, which arise out of, or result from (i) any breach by Internet Media in performing any of its covenants or agreements in this Agreement or in any schedule, certificate, exhibit or other instrument furnished or to be furnished by Internet Media under this Agreement,  (ii) a failure of any representation or warranty in this Article III, or (iii) any untrue statement made by Internet Media in this Agreement.

3.19            Criminal or Civil Acts. For a period of five years prior to the execution of this Agreement, no executive officer, director or principal stockholder of Internet Media has been convicted of a felony crime, filed for personal bankruptcy, been the subject of a Securities and Exchange Commission (“Commission”) or NASD judgment or decree, or is currently the subject to an investigation in connection with any felony crime or Commission or NASD proceeding.

3.20            Bulletin Board Trading Status.   Internet Media shall be in compliance with all requirements for, and its common stock shall continue to be quoted on, the Electronic Over-the-Counter Bulletin Board system on the date immediately prior to the Closing Date, such that the common stock of Internet Media may continue to be so quoted without interruption following the Closing Date.

ARTICLE IV

Covenants Prior to the Closing Date

4.1            Investigative Rights .  Prior to the Closing Date, each party shall provide to the other party, and such other party’s counsel, accountants, auditors and other authorized representatives, full access during normal business hours and upon reasonable advance written notice to all of each party’s properties, books, contracts, commitments and records for the purpose of examining the same.  Each party shall furnish the other party with all information concerning each party’s affairs as the other party may reasonably request.  If during the investigative period one party learns that a representation of the other party was not accurate, no such claim may be asserted by the party so learning that a representation of the other party was not accurate.

4.2            Conduct of Business .  Prior to the Closing Date, each party shall conduct its business in the normal course and shall not sell, pledge or assign any assets without the prior written approval of the other party, except in the normal course of business.  Neither party shall amend its Articles of Incorporation or Bylaws (except as may be described in this Agreement), declare dividends, redeem or sell stock or other securities.  Neither party shall enter into negotiations with any third party or complete any transaction with a third party involving the sale of any of its assets or the exchange of any of its common stock.

 
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4.3            Confidential Information.   Each party will treat all non-public, confidential and trade secret information received from the other party as confidential, and such party shall not disclose or use such information in a manner contrary to the purposes of this Agreement.  Moreover, all such information shall be returned to the other party in the event this Agreement is terminated.

4.4            Notice of Non-Compliance.   Each party shall give prompt notice to the other party of any representation or warranty made by it in this Agreement becoming untrue or inaccurate in any respect or the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement.

 
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ARTICLE V

Conditions Precedent to Internet Media’s Performance

5.1            Conditions .  Internet Media’s obligations hereunder shall be subject to the satisfaction at or before the Closing Date of all the conditions set forth in this Article V.  Internet Media may waive any or all of these conditions in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Internet Media of any other condition of or any of Internet Media’s other rights or remedies, at law or in equity, if U-Vend shall be in default of any of its representations, warranties or covenants under this Agreement.

5.2            Accuracy of Representations .  Except as otherwise permitted by this Agreement, all representations and warranties by U-Vend in this Agreement or in any written statement that shall be delivered to Internet Media by U-Vend under this Agreement shall be true and accurate on and as of the Closing Date as though made at that time.

5.3            Performance .  U-Vend shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed or complied with by it on or before the Closing Date.

5.4            Absence of Litigation .  No action, suit or proceeding, including injunctive actions, before any court or any governmental body or authority, pertaining to the transaction contemplated by this Agreement or to its consummation, shall have been instituted or threatened against U-Vend on or before the Closing Date.

5.5            Officer’s Certificate .  U-Vend shall have delivered to Internet Media a certificate dated the Closing Date signed by the Chief Executive Officer of U-Vend certifying that each of the conditions specified in this Article has been fulfilled and that all of the representations set forth in Article II are true and correct as of the Closing Date.

5.6            Corporate Action .  U-Vend shall have obtained the approval of the U-Vend Security Holders for the transaction contemplated by this Agreement as evidenced by the U-Vend Security Holders holding all of U-Vend’s outstanding common stock executing Exhibit 1.2.  Internet Media shall have obtained the approval of its Board of Directors for the transaction contemplated by the Agreement.

ARTICLE VI

Conditions Precedent to U-Vend’s Performance

6.1            Conditions .  U-Vend’s obligations hereunder shall be subject to the satisfaction at or before the Closing Date of all the conditions set forth in this Article VI. U-Vend may waive any or all of these conditions in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by U-Vend of any other condition of or any of U-Vend’s rights or remedies, at law or in equity, if Internet Media shall be in default of any of its representations, warranties or covenants under this Agreement.

 
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6.2            Accuracy of Representations . Except as otherwise permitted by this Agreement, all representations and warranties by Internet Media in this Agreement or in any written statement that shall be delivered to U-Vend by Internet Media under this Agreement shall be true and accurate on and as of the Closing Date as though made at that time.

6.3            Performance . Internet Media shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed or complied with by it on or before the Closing Date.

6.4            Absence of Litigation . No action, suit or proceeding before any court or any governmental body or authority, pertaining to the transaction contemplated by this Agreement or to its consummation, shall have been instituted or threatened against Internet Media on or before the Closing Date.

6.5            Officer’s Certificate . Internet Media shall have delivered to U-Vend a certificate dated the Closing Date signed by the Chief Executive Officer of Internet Media certifying that each of the conditions specified in this Article has been fulfilled and that all of the representations set forth in Article III are true and correct as of the Closing Date.

6.6            Directors of Internet Media . On the Closing Date, the Board of Directors of Internet Media shall elect one director of U-Vend to Internet Media’s Board of Directors.  The post-Closing Date Board of Directors shall consist of four Directors retained by Internet Media, and one Director nominated by U-Vend.

6.7            Officers of Internet Media . On the Closing Date, the newly constituted Board of Directors of Internet Media shall retain Raymond J. Meyers as its Chief Executive Officer and any remaining officers of Internet Media shall resign.

ARTICLE VII

Closing

7.1            Closing . The closing of this Agreement shall be held at the offices of Internet Media at any mutually agreeable time and date prior to December 31, 2013, unless extended by mutual agreement.  At the closing:

 
(a)
U-Vend shall deliver to Internet Media (i) copies of Exhibit 1.2 executed by all of the U-Vend Security Holders, (ii) certificates representing all 12,385,081 outstanding U-Vend Shares duly endorsed to Internet Media, (iii) the officer’s certificate described in Section 5.5, and (iv) signed minutes of its directors approving this Agreement;

 
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(b)
Internet Media shall deliver to the U-Vend Security Holders (i) certificates representing an aggregate of 466,666,667 shares of Internet Media’s common stock which have been exchanged pursuant to the computations set forth in Exhibit 1.1 hereto, (ii) the officer’s certificate described in Section 6.5, (iii) signed minutes of its directors approving this Agreement, and (iv) resignations from its directors and executive officers, as applicable, pursuant to Sections 6.6 and 6.7.

ARTICLE VIII

Covenants Subsequent to the Closing Date

8.1            Registration and Listing. Following the Closing Date, Internet Media shall use its best efforts to continue Internet Media’s common stock quotation on the Electronic Over-the-Counter Bulletin Board system.

8.2            Stock Issuances.   Following the Closing Date, Internet Media shall issue up to 603,046,666 shares to the U-Vend Security Holders as provided in Section 1.2.

8.3            Unissued Shares.   On the Closing Date, after issuance of the Internet Media common stock to the U-Vend Security Holders, there would be a total of 760,342,721 shares of Internet Media common stock outstanding. However, on the Closing Date, Internet Media will only have 600,000,000 shares of its common stock authorized for issuance. Accordingly, Internet Media will be unable to issue 466,666,667 shares of its common stock (the "Unissued Shares") to the U-Vend Security Holders. In order to allow for the subsequent issuance of the Unissued Shares to the U-Vend Security Holders, Internet Media shall, within 90 days after the Closing Date, either reverse split its common stock or increase its authorized shares of common stock, such that there will be sufficient shares of its common stock authorized for issuance in order to satisfy the issuance of the Unissued Shares. At such time as there are sufficient authorized shares for issuance to the U-Vend Security Holders, Internet Media shall issue the Unissued Shares within 10 business days of such increase in its authorized shares.

ARTICLE IX

Miscellaneous

9.1            Captions and Headings . The article and Section headings throughout this Agreement are for convenience and reference only and shall not define, limit or add to the meaning of any provision of this Agreement.

9.2            No Oral Change . This Agreement and any provision hereof may not be waived, changed, modified or discharged orally, but only by an agreement in writing signed by the party against whom enforcement of any such waiver, change, modification or discharge is sought.

9.3            Non-Waiver . The failure of any party to insist in any one or more cases upon the performance of any of the provisions, covenants or conditions of this Agreement or to exercise any option herein contained shall not be construed as a waiver or relinquishment for the future of any such provisions, covenants or conditions.  No waiver by any party of one breach by another party shall be construed as a waiver with respect to any other subsequent breach.

 
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9.4            Time of Essence . Time is of the essence of this Agreement and of each and every provision hereof.

9.5            Entire Agreement . This Agreement contains the entire Agreement and understanding between the parties hereto and supersedes all prior agreements and understandings.

9.6            Choice of Law . This Agreement and its application shall be governed by the laws of the state of Delaware.

9.7            Counterparts . This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

9.8            Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the third day after mailing if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed as follows:

Internet Media :
Internet Media Services, Inc.
 
1507 7 th Street, #425
 
Santa Monica, California  90401
 
Attn:  Raymond J. Meyers, Chief Executive Officer
   
U-Vend :
U-Vend Canada Inc.
 
312 Grays Road PO Box 56013
 
Fiesta RPO, Stoney Creek, Ontario
 
Canada L8G-5C9
 
Attn:  Paul Neelin, Chief Executive Officer
 
9.9            Binding Effect . This Agreement shall inure to and be binding upon the heirs, executors, personal representatives, successors and assigns of each of the parties to this Agreement.

9.10            Mutual Cooperation . The parties hereto shall cooperate with each other to achieve the purpose of this Agreement and shall execute such other and further documents and take such other and further actions as may be necessary or convenient to effect the transaction described herein.

9.11            Finders . National Securities Corporation served in the capacity of a finder in connection with this transaction.

9.12            Announcements .  The parties will consult and cooperate with each other as to the timing and content of any public announcements regarding this Agreement.

 
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9.13            Expenses . Each party will bear their own expenses, including legal fees incurred in connection with this Agreement.

9.14            Survival of Representations and Warranties . The representations, warranties, covenants and agreements of the parties set forth in this Agreement or in any instrument, certificate, opinion or other writing providing for in it, shall survive the Closing Date.

9.15            Exhibits . As of the execution hereof, the parties have provided each other with the exhibits described herein.  Any material changes to the exhibits shall be immediately disclosed to the other party.

9.16            Termination, Amendment and Waiver.

(a)            Termination .  This Agreement may be terminated at any time prior to the Closing Date, if and only if:

(1)           By mutual written consent of U-Vend and Internet Media;

(2)           By either U-Vend or Internet Media;
 
(i)
If any court of competent jurisdiction or any governmental, administrative or regulatory authority, agency or body shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement; or

 
(ii)
If the transaction shall not have been consummated on or before January 10, 2014, unless the failure to consummate the transaction

is the result of a material breach of this Agreement by the party seeking to terminate this Agreement.

 
(iii)
If the employment agreements with the officers of the Company shall not have been consummated on or before January 10, 2014, unless the failure to consummate the employment agreements is by mutual agreement of the parties.

(3)           By U-Vend, if Internet Media breaches any of its representations or warranties hereof or fails to perform in any material respect any of its covenants, agreements or obligations under this Agreement; and

(4)           By Internet Media, if U-Vend breaches any of its representations or warranties hereof or fails to perform in any material respect any of its covenants, agreements or obligations under this Agreement.

 
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(b)            Effect of Termination .  In the event of termination of this Agreement by either Internet Media or U-Vend, as provided herein, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of U-Vend or Internet Media, and such termination shall not relieve any party hereto for any intentional breach prior to such termination by a party hereto of any of its representations or warranties or any of its covenants or agreements set forth in this Agreement.

(c)            Extension; Waiver .  At any time prior to the Closing Date, the parties may, to the extent legally allowed, (a) extend the time for the performance of any of the obligation of the other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or waive compliance with any of the agreements or conditions contained herein.  Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.  The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights.

(d)            Procedure for Termination, Amendment, Extension or Waiver .  A termination of this Agreement, an amendment of this Agreement or an extension or waiver shall, in order to be effective, require in the case of U-Vend or Internet Media, action by their respective Board of Directors or the duly authorized designee of such Board of Directors.

[Remainder of Page Intentionally Blank; Signature Page Follows]

 
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In witness whereof, the parties have executed this Agreement on the date indicated above.

INTERNET MEDIA SERVICES, INC.
U-VEND CANADA INC.


By:
/s/ Raymond J. Meyers
By:
/s/ Paul Neelin
 
Raymond J. Meyers
 
Paul Neelin
 
Chief Executive Officer
 
Chief Executive Officer

 
 

 
 

 

EXHIBIT 1.1

SCHEDULE OF U-VEND COMMON STOCKHOLDERS
AND
ALLOCATION OF INTERNET MEDIA COMMON SHARES

Name of U-Vend
Stockholder
Number of U-Vend
Shares Exchanged
Number of Internet Media Common
Shares to be Issued
Paul Neelin
 ___________
___________
 
____________________
____________________
____________________
 
____________________
____________________
____________________
 
____________________
____________________
____________________
 
____________________
____________________
____________________
 
____________________
____________________
____________________
 
       
Totals
____________________
____________________
 

(1)           Does not include the issuance by Internet Media of additional shares of its common stock to the U-Vend Security Holders pursuant to Section 1.2 hereof.



 
 

 

EXHIBIT 1.2

SUBSCRIPTION AGREEMENT

In connection with my exchange of no par value common stock of U-VEND CANADA INC. (“U-Vend”), for the $.001 par value common stock of INTERNET MEDIA SERVICES, INC. (“Internet Media”), pursuant to the Agreement Concerning the Exchange of Securities by and among INTERNET MEDIA SERVICES, INC. and U-VEND CANADA INC. and the Security Holders of U-VEND CANADA INC. (the “Exchange Agreement”), I acknowledge the matters set forth below and promise that the statements made herein are true. I understand that Internet Media is relying on my truthfulness in issuing its securities to me.

I hereby represent and warrant to Internet Media that I have the full power and authority to execute, deliver and perform this Subscription Agreement and to consummate the transactions contemplated hereby.  This Subscription Agreement is a legal, valid and binding obligation of mine, enforceable against me in accordance with its terms.  I own the securities in U-Vend that I am exchanging for securities of Internet Media free and clear of all pledges, liens, encumbrances, security interests, equities, claims, options, preemptive rights, rights of first refusal, or any other limitation on my ability to vote such securities or to transfer such securities to Internet Media.  I have full right, title and interest in and to the U-Vend securities that I am exchanging.

I understand that Internet Media’s common stock (the “Securities) is being issued to me in a private transaction in exchange for my securities in U-Vend and in reliance upon the exemption provided in section 4(2) and/or Regulation D under the Securities Act of 1933, as amended (the “Act”) for non-public offerings and pursuant to the Exchange Agreement.  I understand that the Securities are “restricted” under applicable securities laws and may not be sold by me except in a registered offering (which may not ever occur) or in a private transaction like this one.  I know this is an illiquid investment and that therefore I may be required to hold the Securities for an indefinite period of time, but under no circumstances less than one year from the date of their issuance.

I am acquiring the Securities solely for my own account, for long-term investment purposes only and not with a view to sale or other distribution.  I agree not to dispose of any Securities unless and until counsel for Internet Media shall have determined that the intended disposition is permissible and does not violate the Act, any applicable state securities laws or rules and regulations promulgated thereunder.

All information, financial and otherwise, or documentation pertaining to all aspects of my acquisition of the Securities and the activities and financial information of Internet Media have been made available to me and my representatives, if any, and I have had ample opportunity to meet with and ask questions of senior officers of Internet Media, and I have received satisfactory answers to any questions I asked.

 
 

 


In acquiring the Securities, I have been afforded access to the Exchange Agreement and have made such independent investigations of Internet Media as I deemed appropriate.  I am an “accredited investor” as that term is defined in Regulation D, Rule 501 of the Act and am an experienced investor, have made speculative investments in the past and am capable of analyzing the merits of an investment in the Securities.

I understand that the Securities are highly speculative, involve a great degree of risk and should only be acquired by individuals who can afford to lose their entire investment.  Nevertheless, I consider this a suitable investment for me because I have adequate financial resources and income to maintain my current standard of living even after my acquisition of the Securities.  I know that Internet Media currently has only negligible assets and liabilities, and that although I could lose my entire investment, I am acquiring the Securities because I believe the potential rewards are commensurate with the risk.  Even if the Securities became worthless, I could still maintain my standard of living without significant hardship to me or my family.

By signing this Subscription Agreement, I also accept and agree to be bound by and to abide by the terms and conditions of the Exchange Agreement as if I had executed the Exchange Agreement itself.

Dated as of this __________ day of ___________, 2013.


 
________________________________________
 
Signature
   
 
________________________________________
 
Name, Please Print
   
 
________________________________________
 
Residence Address
   
 
________________________________________
 
City, State and Zip Code or City, Province
 
or Country of Residence
   
 
________________________________________
 
Area Code and Telephone Number
   
 
________________________________________
 
Social Security Number, if applicable
   
 
________________________________________
 
Number of U-Vend Shares exchanged


 
 

 

EXHIBIT 2.5

FINANCIAL STATEMENTS OF U-VEND

 
 

 

EXHIBIT 2.17

SCHEDULE OF U-VEND MATERIAL CONTRACTS

 
1.
Mercedes Benz Financial Services truck lease dated October 25, 2013
 
2.
McClennan Property Management Company industrial building lease dated October 2, 2013

 
 

 

  EXHIBIT 3.5
FINANCIAL STATEMENTS OF INTERNET MEDIA






Exhibit 10.25

EMPLOYMENT AGREEMENT
 
This EMPLOYMENT AGREEMENT (the “ Agreement ”) is made and entered into as of the 7th day of January 2014 (the “ Effective Date ”), by and between Internet Media Services, Inc., a Delaware corporation (the “ Company ”), and Paul Neelin, an individual (the “ Employee ”).
 
1.            Employment Period .  The Company hereby agrees to employ the Employee as its Founder and Chief Operations Officer, and the Employee, in such capacity, agrees to provide services to the Company for the term beginning on the Effective Date (the “ Commencement Date ”) and ending on December 31, 2016 , unless earlier terminated in accordance with this Agreement (the “ Initial Term ”).
 
This Agreement shall be extended for additional one year terms (each such term, a “ Renewal Term ”)], unless either the Board of Directors of the Company (the “ Board ”) or the Employee objects to such extension by delivering written notice to the other party at least [ninety (90) days] prior to the expiration of the Initial Term or the applicable Renewal Term.  Such notice, if given by either party and not withdrawn prior to the end of the applicable year, shall be deemed a termination of Employee’s employment by the party who delivered such notice under this Agreement.  The Initial Term and each Renewal Term shall be collectively referred to herein as the “ Employment Period ”.
 
2.            Performance of Duties .  The Employee agrees that during the Employment.  Period, while he is employed by the Company, he shall devote 100% of his full working time, energies and talents performing the duties assigned to him by the Board faithfully, efficiently and in a professional manner.  During the Employment Period, the Employee may not engage, undertake or be interested in (whether directly or indirectly) any other employment, business or occupation or become a director or employee or agent or consultant or partner of any other person, officer or company which either individually or in the aggregate would violate the immediately preceding sentence without the prior written consent of the Board.
 
3.            Compensation .  Subject to the terms and conditions of this Agreement, during the Employment Period, the Employee shall be compensated by the Company for his services as follows:
 
(a)           He shall receive, for the Initial Term and each Renewal Term, if any, a rate of salary that is not less than $10,000 (USD) Dollars per month (the “ Salary ”), payable monthly and subject to normal and customary tax withholding and other deductions, all on a basis consistent with the Company’s normal payroll procedures and policies.  During (i) the thirty (30) day period prior to the expiration of each successive twelve (12) month period during the Initial Term, and (ii) the thirty (30) day period prior to the commencement of any Renewal Term, the Employee’s salary rate shall be reviewed by the Board to determine whether an increase in his rate of compensation is appropriate, which determination shall be within the sole discretion of the Board.
 
(b)           He shall be eligible to receive, for the Initial Term and each Renewal Term, if any, an annual bonus (the “ Bonus ”), based on performance goals as established and approved by the Board.  [The performance goals and the target amount of the Bonus for the calendar years ending December 31, 2014, 2015 and 2016 respectively,  is as set forth on Schedule A attached hereto.]  The Board shall review the amount of the Bonus during the sixty (60) day period prior to the expiration of each calendar year during the Employment Period, in order to determine whether the target Bonus amount for the subsequent calendar year should be adjusted based on market compensation for similar positions.  The performance goals and the target Bonus amount for the Employee shall be established by the Board within thirty (30) days following the commencement of each calendar year during the Employment Period (beginning with the calendar year 2015); provided , however , that the target amount of the Bonus for each calendar year shall be not less than a sum equal to twenty percent 20%) of Employee’s then applicable Salary.  The Bonus shall be computed and paid to Employee at such time and in such manner as the Board shall determine, but the Company shall make reasonable efforts to pay such Bonus promptly after completion of the applicable calendar year and in no event later than sixty (60) days following the end of the preceding calendar year.  Should the Employee resign or be terminated, he will not be entitled to receive any Bonus for the calendar year during which Employee was terminated or resigned.  Unless mutually agreed.

 
 

 
 
(c)           He shall be reimbursed by the Company for all reasonable business, promotional, travel and entertainment expenses incurred or paid by him during the employment period in the performance of his services under this Agreement that are consistent with the Company’s policies in effect from time to time, provided that the Employee furnishes to the Company appropriate documentation in a timely fashion required by the Internal Revenue Code in connection with such expenses and shall furnish such other documentation and accounting as the Company may from time to time reasonably request.
 
(d)           He shall be entitled to all scheduled holidays of the Company, and a minimum of fifteen (15) days of paid vacation per year (subject to increase in the sole discretion of the Board).
 
(e)           He shall be eligible to participate in the benefits made generally available by the Company to the Employee management team, in accordance with the benefit plans established by the Company, and as may be amended from time to time in the Company’s sole discretion. 
 
(f)            He shall be entitled to a monthly car allowance of $500.
 
4.            Termination .  The Employee’s employment hereunder may be terminated prior to the expiration of the Employment Period under the following circumstances:
 
(a)            Death .  The Employee’s employment hereunder shall terminate upon his death.
 
(b)            Total Disability . The Company may terminate Employee’s employment upon the Employee becoming “Totally Disabled.”  For purposes of this Agreement, “ Totally Disabled ” means any physical or mental ailment or incapacity as determined by a licensed physician in good standing, which has prevented, or is reasonably expected (as determined by a licensed physician in good standing) to prevent, the Employee from performing the duties incident to the Employee’s employment hereunder which has continued for a period of either (A) one hundred twenty (120) consecutive days or (B) two hundred ten (210) total days in any twelve (12) month period; provided , however , that the Employee receives at least thirty (30) days written notice prior to such termination.
 
(c)            Termination by the Company for Cause .  The Company may terminate Employee’s employment hereunder for “Cause.” For purposes of this Agreement, “ Cause ” shall mean:
 
(i)           any act or omission that constitutes a material breach by the Employee of any of his obligations under this Agreement;
 
(ii)          the refusal or failure by the Employee to carry out specific reasonable directions of the Board, which are of a material nature and consistent with the Employee’s position;
 
(iii)         the refusal or failure by the Employee to satisfactorily perform the duties reasonably required of him by the Company in his capacity as Founder and Chief Operations Officer of the Company;
 
(iv)         in any calendar year where the gross revenue of the Company reported on a GAAP basis has not exceeded $500,000;
 
(v)         the Employee engaging in any misconduct, fraud or dishonest action (including, without limitation, theft or embezzlement), violence, threat of violence, or any activity that could result in any violation of federal securities laws, in each case that is injurious to the Company or any of its subsidiaries or affiliates;
 
(vi)        the Employee’s material breach of a written policy of the Company;
 
(vii)       the conviction of the Employee of, or plea of nolo contendere to, a felony under federal or state law, or a crime involving dishonesty or moral turpitude or which could reflect negatively upon the Company or otherwise impair or impede its operations (as determined in the reasonable discretion of the Board); or

 
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(viii)      any other willful misconduct by the Employee which is materially injurious to the financial condition or business reputation of the Company or any of its affiliates.
 
(ix)         insolvency of the Company through the protection of the bankruptcy codes, assignment for the benefit of creditors (ABC), or any and all public or private insolvency options available to the Company.

Notwithstanding the foregoing, “Cause” for termination shall not be deemed to exist with respect to the Employee’s acts as described in subsections (i), (ii), (iii), (iv) or (vi) above, unless the Company shall have given written notice to the Employee within a period not to exceed fifteen (15) days of the Company’s knowledge of the initial existence of the occurrence, specifying the “Cause” with reasonable particularity and, within thirty (30) days after such notice, the Employee shall not have cured or eliminated the problem or thing giving rise to such “Cause;” provided , however , no more than two (2) cure periods need be provided during any twelve (12) month period.  For the avoidance of doubt, Employee shall not be afforded any cure period with respect to the acts described in subsections (v), (vii),(viii) or (ix) above.
 
(d)            Termination by Employee for Good Reason .  Employee may terminate his employment with the Company for Good Reason.  For purposes of this Agreement, “ Good Reason ” shall mean a termination by the Employee of his employment with the Company due to a breach by the Company of its material obligations under this Agreement, or any other agreement to which Employee and Company are both parties; provided , however , that (i) the Employee provides written notice to the Company specifying in reasonable detail the circumstances claimed to provide the basis for such termination within thirty (30) days following the occurrence of such events, without the Employee’s consent, (n) if such circumstances are correctable, the Company fails to correct the circumstances set forth in Employee’s notice of termination within thirty (30) days of receipt of such notice, and (iii) the Employee actually terminates employment within sixty (60) days following such occurrence:
 
(e)            Voluntary Termination by the Employee other than for Good Reason .  The Employee may terminate his employment hereunder at any time by providing written notice to the Company at least thirty (30) days prior to his voluntary termination of employment.
 
(f)             Notice of Termination .  Any termination by the Company or by the Employee under this Agreement shall be communicated by written notice to the other party.
 
For avoidance of doubt, the Company may not terminate the Employee’s employment hereunder for any reason except for the reasons described in this Section 4.
 
5.            Obligations and Compensation Following Termination of Employment .  In the event that Employee’s employment hereunder is terminated, Employee shall have the following obligations and shall be entitled to the following compensation and benefits upon such termination, and nothing else:
 
(a)           In the event that (A) Employee terminates his employment for Good Reason in accordance with Section 4(d) above, or (B) the Company terminates his employment in any manner other than pursuant to Section 4(a), Section 4(b) or Section 4(c), above, in any case, but subject to the Employee’s compliance with the provisions contained in Sections 5(d), 5(e), the Company shall pay to the Employee: (.i) any accrued but unpaid Salary for services rendered to the date of termination; and (ii) an amount equal to the Salary at the time of such termination, payable for the remainder of the then-current term (i.e., the Initial Term or any Renewal Term).
 
(b)            Termination due to Death or Total Disability .  In the event that the Employee’s employment is terminated due to the Employee’s death or by the Company as a result of the Employee being deemed to be Totally Disabled, the Company shall pay to the Employee the following amounts and nothing else: (i) any accrued but unpaid Salary for services rendered to the date of termination; and (ii) an amount equal to the Salary at the time of such termination, payable each month, over a six month period beginning thirty (30) days after the date of such termination in accordance with Section 3(a) above.

 
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(c)            Termination by the Company for Cause or Voluntary Termination by Employee other than for Good Reason .  In the event that Employee’s employment is terminated by the Company for Cause pursuant to Section 4(c) above, or due to the Employee’s voluntary resignation other than for Good Reason pursuant to Section 4(e) above, the Company shall pay to the Employee any accrued but unpaid Salary for services rendered to the date of termination and nothing else.
 
(d)            Employee’s Obligation to Execute a General Release .  In the event that Employee’s employment is terminated for any reason, the Company’s obligation to pay the Employee the amounts set forth above in this Section 5 (with the exception of any accrued but unpaid Salary for services rendered on the date of termination) shall be conditioned upon the Employee (or his estate or beneficiary, as applicable) executing, and the effectiveness within ninety (90) days after such termination of employment of, a valid waiver and release of all claims that the Employee may have against the Company, Board of Directors, consultants, advisors, etc. under this Agreement in a form reasonably satisfactory to the Company (which waiver and release of all claims shall not waive or release claims for amounts payable pursuant to this Agreement or claims Employee may have as a shareholder of the Company).  Notwithstanding the above, Employee agrees not to bring, or cause to bring, any type of legal action against any member of the Company’s board of  directors, past or present, for any reason.  Employee acknowledges that by being a member of the board of directors they have the ability to influence and approve actions that require board of directors approval and, as such, have an equal voice related to all board of directors decisions.
 
(e)            Return of Company Property .  In the event that Employee’s employment is terminated for any reason, the Employee (or his estate or legal representative, as the case may be) shall be obligated to immediately return all properly of the Company or any of its affiliates in his (or their) possession as of the date of termination, including, but not limited to, (i) cell phones, personal computers or other electronic devices provided by the Company, including all files resident on such devices; (ii) all memoranda, notes, records, files or other documentation, whether made or compiled by the Employee alone or in conjunction with others (regardless of whether such persons are employed by the Company); (iii) all proprietary or other information of the Company and its affiliates (originals and all copies) which is in the Employee’s control or possession (or that of his estate or legal representative, as the case may be); and (iv) any and all other property of the Company and its affiliates which is in the Employee’s control or possession (or that of his estate or legal representative, as the case may be), whether directly or indirectly.
 
(f)             Transition Services .  In the event that either (i) the Employee terminates his employment without Good Reason in accordance with Section 4(e) above, or (ii) the Employment Period expires pursuant to either party’s non-renewal thereof, the Employee agrees that after the date of such termination or expiration, as applicable, he shall, for a period not to exceed ninety (90) days from the effective date of his termination, take all actions as reasonably requested by the Company in order to transition all of his former job duties and responsibilities to his successor, and the Company shall compensate the Employee for such services at the pro rata hourly rate of the Employee’s Salary as of the date of the date of the Employee’s termination.
 
6.            Covenants of Employee .  The Employee covenants and agrees that:
 
(a)             Confidential Information .  During the Employment Period and at all times thereafter, the Employee shall keep secret and retain in strictest confidence, and shall not use for his benefit or the benefit of others, except in connection with the business and affairs of the Company and its affiliates, all confidential matters relating to the Company’s business or to the Company and its affiliates learned by the Employee heretofore or hereafter directly or indirectly from the Company and its affiliates, including, without limitation, information with respect to (a) operations, (b) sales figures, (c) profit or loss figures and financial data, (d) costs, (e) customers, clients, and customer lists (including, without limitation, credit history, repayment history, financial information and financial statements), and (f) plans (collectively, the “ Confidential Information ”) and shall not disclose such Confidential Information to anyone outside of the Company and its affiliates except with the Company’s express written consent and except for Confidential Information which (1) is at the time of receipt or thereafter becomes publicly known through no wrongful act of the Employee or (2) is received from a third party not under an obligation to keep such information confidential and without breach of this Agreement.  The Employee further agrees that he shall not make any statement or disclosure that (a) would be prohibited by applicable Federal or state laws or (b) is intended or reasonably likely to be detrimental to the Company or any of its subsidiaries or affiliates.

 
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(b)            Non-Solicitation .  During the Employment Period and for a six-month period thereafter (the “ Restricted Period ”), the Employee shall not, without the Company’s prior written consent, directly or indirectly, knowingly solicit or encourage any employee of the Company to leave the employment of the Company or hire or participate in hiring any employee who has left the employment of the Company during the Restricted Period or the six (6) month period prior to the beginning of the Restricted Period.
 
(c)             Non-Compete .
 
(i)           During the Employment Period and, in the event (A) the Employee’s employment with the Company is terminated for “Cause,” (B) the Employee resigns from the Company without “Good Reason,” or (C) the Employee elects for the Employment Period to expire in accordance with Section 1 above, then, also during the Restricted Period, the Employee expressly shall not, directly or indirectly, without the prior written consent of the Board, own, manage, operate, join, control, franchise, license, receive compensation or benefits from, or participate in the ownership, management, operation, or control of, or be employed or be otherwise connected in any manner with, a Competitive Business; provided , however , that the foregoing shall not prohibit the Employee from acquiring, solely as an investment and through market purchases, securities of any entity which are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded, so long as the Employee is not part of any control group of such entity and such securities, alone or if converted, do not constitute more than five percent (5%) of the outstanding voting power of that entity.  For purposes of this Section 6(c), “ Competitive Business ” means any enterprise in the business that markets, sells, or distributes, via vending kiosks, products or services that are the same or similar to the products or services the Company markets, sells, or distributes.

(ii)          Employee recognizes that Employee’s services hereunder are of a special, unique, unusual, extraordinary and intellectual character giving them a peculiar value, the loss of which cannot be reasonably or adequately compensated for in damages, and in the event of a breach of this Agreement by Employee (particularly, but without limitation, with respect to the provisions hereof relating to the exclusivity of Employee’s services), the Company shall, in addition to all other remedies available to it, be entitled to equitable relief by way of an injunction and any other legal or equitable remedies.  Anything to the contrary herein notwithstanding, the Company may seek such equitable relief in any federal or state court in New York and Employee hereby submits to exclusive jurisdiction in those courts for purposes of this Section (6)(c)(ii).  Such exclusive jurisdiction of courts in New York shall not affect a court’s ability to award equitable relief as provided in Section 7(a) of this Agreement.
 
(d)            Records .  All memoranda, notes, lists, records and other documents (and all copies thereof) made or compiled by the Employee or made available to the Employee by the Company concerning the Company’s business or the Company shall be the Company’s property and shall be delivered to the Company at any time on request.
 
(e)            Acknowledgment .  Employee acknowledges and agrees that the restrictions set forth in this Section 6 are critical and necessary to protect the Company’s legitimate business interests (including the protection of its Confidential Information); are reasonably drawn to this end with respect to duration, scope, and otherwise; are not unduly burdensome; are not injurious to the public interest; and are supported by adequate consideration.  Employee also acknowledges and agrees that, in the event that Employee breaches any of the provisions in this Section 6, the Company shall suffer immediate, irreparable injury and will, therefore, be entitled to injunctive relief, in addition to any other damages to which it may be entitled, as well as the costs and reasonable attorneys’ fees it incurs in enforcing its rights under this Section 6.  Employee further acknowledges that any breach or claimed breach of the provisions set forth in this Agreement will not be a defense to enforcement of the restrictions set forth in this Section 6.
 
(f)            Cessation of Payments and Benefits Upon Breach .  Company’s obligations to make any payments or confer any benefit under this Agreement, other than to pay for all compensation and benefits accrued but unpaid up to the date of termination, will automatically and immediately terminate in the event that Employee breaches any of the restrictive covenants in this Section 6; provided , however , that Company provides written notice to Employee specifying in reasonable detail the circumstances claimed to provide the basis for such breach without Company’s consent, of such events.

 
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7.            Rights and Remedies Upon Breach of Restrictive Covenants .  If the Employee breaches, or threatens to commit a breach of, any of the provisions of Section 6 (the “ Restrictive Covenants ”), the Company shall have the following rights and remedies (upon compliance with any necessary prerequisites imposed by law upon the availability of such remedies), each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity:
 
(a)           The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, including, without limitation, the right to an entry against the Employee of restraining orders and injunctions (preliminary, mandatory, temporary and permanent) against violations, threatened or actual, and whether or not then continuing, of such covenants, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company; and
 
(b)           The right and remedy to require the Employee to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits (collectively, “ Benefits ”) derived or received by him as the result of any transactions constituting a breach of the Restrictive Covenants, and the Employee shall account for and pay over such Benefits to the Company.
 
8.            Indemnification .
 
(a)           The Company shall indemnify Employee to the fullest extent permitted by Delaware against all claims, actions, costs, expenses, liabilities, and losses (including without limitation, attorneys’ fees, judgments, fines, penalties, and ERISA excise taxes), incurred by Employee in connection with an Identifiable Proceeding that arises from or relates to any acts, events, or omissions that occur on or after the Effective Date of this Agreement.  For purposes of this Section 8, “ Identifiable Proceeding ” shall mean any identifiable action, suit, or proceeding, whether civil or criminal, administrative or investigative, in which Employee is made a party to, or a witness in, such action, suit, or proceeding by reason of the fact that Employee is or was an officer, director or employee of the Company or is or was serving as an officer, director, shareholder, employee, trustee, or agent of any other entity at the request of the Company.  To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company, Employee shall be covered by such policy or policies in accordance with its or their terms.
 
(b)           The Company shall advance to Employee all reasonable costs and expenses incurred in connection with an Identifiable Proceeding within twenty (20) days after receipt by the Company of a written request for such advance.  Such request shall include an itemized list of the costs and expenses expected to be incurred in connection with the Identifiable Proceeding.  Employee shall promptly repay the amount of such advance if ultimately it shall be determined that Employee is not permitted to be indemnified against such costs and expenses under applicable law.  If Employee has commenced or commences legal proceedings in a court of competent jurisdiction to secure a determination that Employee should be indemnified under applicable law, as provided in this Section 8. then Employee shall not be required to reimburse the Company for any expense or cost advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or have lapsed).  Employee’s obligation to reimburse the Company, for expense advances shall be unsecured and no interest shall be charged thereon.
 
(c)           The Company shall not settle any Identifiable Proceeding or claim in any manner which would impose on Employee any penalty or limitation without Employee’s prior written consent.  Employee will not withhold consent to any proposed settlement of an Identifiable Proceeding unreasonably.
 
9.            Successors; Assignment .  This Agreement shall be binding on, and inure to the benefit of, each of the parties and their permitted successors and assigns.  This Agreement may be assigned by the Company to a successor in interest in connection with a sale of all or substantially all of the assets or securities of the Company.
 
10.          Severability; Blue Penciling .

 
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(a)           The Employee acknowledges and agrees that (i) he has had an opportunity to seek advice of counsel in connection with this Agreement and (ii) the Restrictive Covenants are reasonable in geographical and temporal scope and in all other respects.  If it is determined that any of the provisions of this Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full effect, without regard to the invalid portions.
 
(b)           If any court determines that any of the covenants contained in this Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, the duration or scope of such provision, as the case may be shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced.
 
11.          Waiver of Breach .  The waiver by either the Company or the Employee of a breach of any provision of this Agreement shall not operate as or be deemed a waiver of any subsequent breach by either the Company or the Employee.
 
12.          Notice .  Any notice to be given hereunder by a party hereto shall be in writing and shall be deemed to have been given when deposited in the U.S. mail, certified or registered mail, postage prepaid:
 
(a)           to the Employee addressed as follows:
 
___________________
___________________
___________________

(b)           to the Company addressed as follows:
 
Internet Media Services, Inc.
1507 7 th Street, #425
Santa Monica, CA 90401
 
13.          Amendment .  This Agreement may be amended only by mutual agreement of the parties in writing without the consent of any other person and no person, other than the parties thereto (and the Employee’s estate upon his death), shall have any rights under or interest in this Agreement or the subject matter hereof.
 
14.          Applicable Law .  The provisions of this Agreement shall be governed by and construed in accordance with the internal laws of the State of  Delaware without regard to the conflicts of laws principles thereof.  Any dispute is to be resolved exclusively in the courts of the State of California.
 
15.          Interpretation .  This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party.  Sections and section headings contained in this Agreement are for reference purposes only, and shall not affect in any manner the meaning or interpretation of this Agreement.  Whenever the context requires, references to the singular shall include the plural and the plural the singular.
 
16.          Counterparts .  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original of this Agreement, but all of which together shall constitute one and the same instrument.
 
17.          Authority .  Each party represents and warrants that such party has the right, power and authority to enter into and execute this Agreement and to perform and discharge all of the obligations hereunder; and that this Agreement constitutes the valid and legally binding agreement and obligation of such party and is enforceable in accordance with its terms.

 
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18.          Entire Agreement .  This Agreement is intended to be the final, complete, and exclusive statement of the terms of Employee’s employment by the Company and may not be contradicted by evidence of any prior or contemporaneous statements or agreements, except for agreements specifically referenced herein.  To the extent that the practices, policies or procedures of the Company, now or in the future, apply to Employee and are inconsistent with the terms of this Agreement, the provisions of this Agreement shall control.  Any subsequent change in Employee’s duties, position, or compensation will not affect the validity or scope of this Agreement.
 
[remainder of page intentionally left blank; signature page to follow]

 

 
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IN WITNESS WHEREOF, the Employee and the Company have executed this Employment Agreement as of the Effective Date.
 
 
“Employee”
 
     
 
/s/ Paul Neelin
 
 
Name
 
     
 
“Company”
 
     
 
INTERNET MEDIA SERVICES, INC.
 
     
 
/s/ Alex Orlando
 
 
Name: Alex Orlando
 
 
Title: BOARD MEMBER
 
 
 
     
 
/s/ Patrick White
 
 
Name: Patrick White
Title: BOARD MEMBER
 
 
 
     
 
/s/ Philip Jones
 
 
Name: Philip Jones
Title: BOARD MEMBER
 



[Signature Page to Employment Agreement]
 

 
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Schedule A
 
Bonus Structure
 
PERIOD
CASH BONUS
CRITERIA FOR CASH BONUS
1/1/2014 – 12/31/2014
Minimum 20 PERCENT OF SALARY
GROSS REVENUE FOR THE PERIOD OVER
$1,000,000
1/1/2015 – 12/31/2015
Minimum 20 PERCENT OF SALARY
GROSS REVENUE FOR THE PERIOD OVER
$2,000,000
1/1/2016 – 12/31/2016
Minimum 20 PERCENT OF SALARY
GROSS REVENUE FOR THE PERIOD OVER
$3,000,000
 
SHOULD REVENUE EXCEED THE YEARLY TARGET AND MEET FUTURE YEAR TARGETS
THEN THE BONUS WILL BE ACCELERATED TO INCLUDE THE FUTURE YEARS BONUS.

 
Gross revenue is calculated on a GAAP basis.
 
 
 



Exhibit 10.26
 
   
ESTABLISHED 1947
Member FINRA/SIPC
 
 
April 10, 2014
 

Paul Neelin
Chairman & Chief Executive Officer
U-Vend, Inc.
312 Grays Road
PO box 56013
Fiesta RPO, Stoney Creek
Ontario L8G-5C9



Dear Paul:
 
National Securities Corp. (“National”) is pleased to act as exclusive financial advisor to U-Vend, Inc. (the “Company” ) with respect to (i) advising the Company regarding its strategy and financial alternatives, (ii) providing investment banking services to the Company, which may include representing the Company   on a “best efforts” basis to obtain financing in the form of equity, debt, convertible securities or any other securities (a “Capital Raising Transaction”) (iii) advising the Company in the review of a potential acquisition of various targeted companies (the “Targeted Companies”) (in one or a series of transactions), by purchase, merger, consolidation and other business combination involving all, or a substantial amount of, the business, securities, or assets of the Targeted Companies (an “Acquisition Transaction”) (iv) assisting the Company in identifying acquirers (the “Acquirer”) and evaluating, prioritizing and negotiating proposals to sell the Company, in whole or parts by sale, merger, consolidation and other business combinations involving all or substantial amount of the business, securities, or assets of the Company (a “Sale Transaction”). It is understood that during the term of this engagement, the Company or National may add additional companies to the list of Targeted Companies or Acquirers. The company is free, at its sole discretion, to accept or reject the terms of any proposed capital raising, acquisition or sale transaction, and may modify, postpone or abandon the transaction(s) at its sole discretion for any reason or no reason at all.
 
1.            Services . In connection with this engagement, National will perform the following services:
 
a.            Capital Raising Services . National will assist the Company in a Capital Raising Transaction(s). National will introduce the Company to potential investors who may have an interest in financing the Company and will advise the Company with respect to the proposed structure and terms and conditions of the Capital Raising Transaction. National will help the Company prepare for investor meetings, management presentations, responses to requests for data, negotiating and closing the Capital Raising Transaction. This includes reviewing proposals from potential financing sources, analyzing the terms of such proposals and
 
 
 

 
U-Vend, Inc.
April 10, 2014
Page 2

 
participating in presentations to the Company’s Board of Directors regarding any proposals, as well as reviewing the transaction documentation and other customary closing activities.
 
b.            Advisory Services . National will advise the Company with respect to its strategy and financial options, Acquisition Transaction(s) or Sale Transaction(s). We will participate in presentations to the Company’s Board of Directors relating to our advisory work, assess the proposed structures for a transaction and offer the Company guidance in negotiating the terms of the transaction and will assist the Company in the closing of the transaction, including formulating and presenting responses and counteroffers, conducting due diligence, and documenting the transaction.
 
2.            Information Provided to National . In connection with our engagement, the Company has agreed to furnish to National, on a timely basis, all relevant information needed by National to perform our obligations under the terms of this agreement. During our engagement, it may be necessary for us: to interview the management of, the auditors for, and the consultants and advisors to, the Company and/or the Targeted Companies or Acquirers; to rely (without independent verification) upon data furnished to us by you and by them; and to review any financial and other reports relating to the business and financial condition of the Company and/or Targeted Companies or Acquirers as we may determine to be relevant under the circumstances. In this connection, the Company will make available to us such information as we may request, including information with respect to the assets, liabilities, earnings, earning power, financial condition, historical performance, future prospects and financial projections and the assumptions used in the development of such projections of the Company. We agree that all non-public information obtained by us in connection with our engagement will be held by us in strict confidence and will be used by us solely for the purpose of performing our obligations relating to our engagement.
 
We do not assume any responsibility for, or with respect to, the accuracy, completeness or fairness of the information and data supplied to us by the Company and/or Targeted Companies or Acquirers or their representatives. In addition, the Company acknowledges that we will assume, without independent verification, that all information supplied to us with respect to the Company and/or Targeted Companies or Acquirers will be true, correct and complete in all material respects and will not contain any untrue statements of material fact or omit to state a material fact necessary to make the information supplied to us not misleading. If at any time during the course of our engagement the Company becomes aware of any material change in any of the information previously furnished to us, it will promptly advise us of the change. Notwithstanding the foregoing, in its dealings and communications with third parties on behalf of the Company, and subject to its right to rely on the veracity and completeness of all information provided to it by or on behalf of the Company, National shall not make any untrue statements of material fact or fail to state a material fact necessary to make the statements and information contained therein , in light of the circumstances under which they are made, not false or misleading.
 
 
 

 
 

 
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April 10, 2014
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3.            Scop e of Engagement . The Company acknowledges that we will not make, or arrange for others to make, an appraisal of any physical assets of the Targeted Companies, or the Company. Nonetheless, if we determine that any such appraisal is necessary or desirable, we will so advise the Company and, if approved by the Company in writing, the costs incurred in connection with such appraisal(s) will be borne by  the Company. No additional persons or entities, including co-underwriters, co-placement agents, co-initial purchasers or co-arrangers shall participate in any transaction in any capacity without the prior written consent of National and the Company.
 
National is being engaged by the Company only in connection with the matters described in this letter agreement and for no other purpose. We have not made, and will assume no responsibility to make any representation in connection with our engagement as to any legal matter. National shall not be required to render any advice or reports in writing or to perform any other services.
 
4.            Term of Engagement . Our representation will continue for a period of twelve (12) months from the date first set forth above; however National’s engagement hereunder may be terminated at any time by either National or the Company upon written notice thereof to the other party, with or without cause, without liability or continuing obligation on the part of the Company or National, provided, however, that no termination or expiration of this letter agreement shall affect the matters set forth in Sections 2, 6, 9 and 14 and the indemnification provisions of this Agreement. Notwithstanding the foregoing, in the event of termination or expiration of this agreement, other than as a result of National’s willful misconduct or gross negligence, National will be entitled to a Financing Completion Fee and/or Advisory Completion Fee (as defined under Section 5) if a transaction is Consummated (as defined below) by the Company during the twelve (12) month period following expiration or termination of this letter agreement with any Targeted Companies, Acquirers and/or investors contacted during the term of this letter agreement (“Tail Period”). Upon termination or expiration of this letter agreement National and the Company will compile a list which shall serve as the final definitive list of investors, Targeted Companies and identified Acquirers which shall include any and all companies that were introduced to the Company directly or indirectly by National or contacted directly by the Company or approached National or the Company directly or indirectly during the term of this letter agreement. A transaction shall be deemed “Consummated” by the Company upon execution of the definitive agreements for such transaction by the Company.
 
5.            Fees and Expenses . As compensation for our professional services, National will receive compensation payable under clause 5(a) through 5(c) below. The Company also agrees to reimburse any reasonable out-of-pocket expenses actually incurred by National during the term of its engagement hereunder, with any expenditure greater than $500 requiring prior approval. The Company also agrees to reimburse National for all reasonably necessary legal expenses
 
 
 

 
 

 
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April 10, 2014
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actually   incurred by National for services provided by outside counsel, whether or not a Capital Raising, Acquisition, or Sale Transaction occurs.
 
Compensation for our services will be as follows:
 
a.   Strategic Advisory.
 
The Company shall pay National a non-refundable advisory fee in the amount of five thousand dollars ($5,000) (the “Strategic Advisory Fee”) upon execution of this agreement.
 
b.            Capital Raising .
 
(i)            Financing Completion Fee . During the term of this agreement and the Tail Period, at the time the Capital Raising Transaction closes, National will be paid a cash fee (the “Financing Completion Fee”) equal to 8.0% of the total amount of cash received by the Company  in an equity or equity-linked transaction and 3.0% of the total amount of debt received by the Company, upon the sale of its securities to investors introduced to the Company by National during the term of this agreement. For those investors introduced by the Company, the fee shall be reduced by half.
 
(ii)            Warrants . As part of the Financing Completion Fee, National will receive warrants to purchase common stock in an amount equal to 8.0% of the number of shares of securities purchased by investors in a Capital Raising Transaction and that the investors obtain a right to acquire through purchase, conversion, or exercise of convertible securities issued by the Company in a Capital Raising Transaction that closes during the term of this agreement and the Tail Period. The warrants will include piggyback registration rights, a net exercise provision, as well as other customary conditions, and will have a term of five years from the closing date of the Capital Raising Transaction. The warrants will be immediately exercisable at the price per share at which the investor can acquire the common stock, adjusted for conversion, stock splits or other dilutive events. In the event there is no public market for the Company’s common stock and investors do not receive warrants in a Capital Raising Transaction, the exercise price of the warrants due National will be equal to the price per share that investors in the Capital Raising Transaction are able to purchase securities from the Company.
 
c.            Merger & Acquisition Advisory Services .
 
(i)           Advisory Completion Fee . During the term of this agreement (and thereafter as provided in Section 4 above) at the time an Acquisition or Sale Transaction closes, the Company will pay National a fee (the “Advisory Completion Fee”) equal to the greater of (i) 2.0% times the Transaction Value (as defined in Appendix A) and (ii) $100,000 (one hundred thousand US dollars), at the closing of the Acquisition or Sale Transaction; as and when actually received by the Company.  Such completion fee shall be paid in the same form and in the same ratios as the consideration in the Acquisition or Sale Transaction. In the event the Transaction is a Reverse Takeover (“RTO”), the Company shall issue to NHLD and/or its designees 4% of
 
 
 
 
 
 

 
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April 10, 2014
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the total post-transaction shares outstanding (“RTO Shares”) for its services. For the purpose of calculating total shares outstanding, any equity issued in conjunction with a simultaneous funding transaction shall be excluded from the calculation.
 
(ii)           If an Acquisition or Sale Transaction is Consummated whereby, directly or indirectly, less than a 50% interest in the Company or the targeted companies, as the case may be, or any of their securities, businesses or assets are transferred for consideration, or if a transaction is consummated consisting of a minority investment, the formation of a joint venture, partnership or other business entity or entry into a strategic alliance (such as an agreement, relationship or arrangement involving supply, distribution or sales representation of products or services, research and development, technology, product licensing or similar arrangement), the Company will pay National a fee equal to the greater of (i) 3.0% times the Transaction Value (as defined in Appendix A) and (ii) $100,000 (one hundred thousand US dollars), upon the occurrence of such event.  Such completion fee shall be paid in the same form and in the same ratios as the consideration in the Acquisition or Sale Transaction.
 
(iii)           If an Acquisition or Sale Transaction is not Consummated and the Company is entitled to receive a termination or break-up or topping fee (the “Break-up Fee”) or any other form of compensation, then the Company shall pay National, upon receipt of the Break-up Fee an amount equal to 30% of the Break-up Fee in the same form of compensation as received by the Company.
 
6.            Indemnity and Contribution . The parties agree to the terms of National’s indemnification agreement, which is attached hereto as Appendix B and incorporated herein by reference. The provisions of this paragraph 6 shall survive any termination of this agreement.
 
7.            Other Business . Except in the event this agreement is terminated by the Company due to National’s breach of this agreement, the Company grants National  a right of first refusal to provide investment banking services to the Company on an exclusive basis in all matters for which investment banking services are sought by the Company during the term of this engagement letter and for a period of twelve (12) months from the expiration or termination of this letter agreement in the case that a Capital Raising, Acquisition or Sale Transaction is consummated as contemplated by this Engagement Letter (such right, the “Right of First Refusal”). For these purposes, investment banking services shall include, without limitation, (i) acting as sole bookrunner and lead manager for any underwritten public offering of securities, including equity, equity-linked or senior, senior subordinated or junior debt securities with a minimum of 60% economics; (ii) acting as exclusive placement agent and/or financial advisor in connection with any private offering of securities, including equity, equity-linked or debt securities of the Company; (iii) acting as exclusive financial advisor in connection with any acquisition, merger, consolidation and other business combination involving all or substantial amount of the business, securities, assets of another entity; and (iv) acting as exclusive financial advisor in connection with any sale or other transfer by the Company, directly or indirectly, of a majority or controlling portion of its capital stock or assets to another entity, any purchase or other transfer by another entity, directly or indirectly, of a majority or controlling portion of the
 
 
 

 
 

 
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April 10, 2014
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capital stock or assets of the Company, and any merger or consolidation of the Company with another entity. National shall notify the Company of its intention to exercise the Right of First Refusal within 10 business days following notice in writing by the Company of its intention to retain a financial advisor/agent/underwriter. Any decision by National to act in any such capacity shall be contained in separate agreements, which agreements would contain, among other matters, provisions for customary fees for transactions of similar size and nature, as may be mutually agreed upon, and indemnification of National and its affiliates and shall be subject to general market conditions. If National declines to exercise the Right of First Refusal, the Company shall have the right to retain any other person or persons to provide such services on terms and conditions which are not materially more favorable to such other person or persons than the terms declined by National. As compensation for any of the foregoing services, National will be paid customary fees to be mutually agreed upon at the appropriate time.
 
8.            Other National Activities . National is a full service securities firm engaged in securities trading and brokerage activities as well as investment banking and financial advisory services. In the ordinary course of our trading and brokerage activities, National or its affiliates may hold positions, for its own account or the accounts of customers, in equity, debt or other securities of the Company or any other company that may be involved in an Acquisition or Sale Transaction. The Company also acknowledges that National and its affiliates are in the business of providing financial services and consulting advice to others. Nothing herein contained shall be construed to limit or restrict National in conducting such business with respect to others, or in rendering such advice to others, except as such advice may relate to matters relating to the Company’s business and properties and that might compromise confidential information delivered by the Company to National.
 
9.            Confidentiality of Advice . Except as otherwise provided in this paragraph, any written or other advice rendered by National pursuant to its engagement hereunder is solely for the use and benefit of the Board of Directors of the Company and shall not be publicly disclosed in whole or in part, in any manner or summarized, excerpted from or otherwise publicly referred to or made available to third parties, other than representatives and agents of the Board of Directors, without National’s prior written approval, unless such disclosure is required by law. In addition, National may not be otherwise publicly referred to without its prior written consent.
 
10.            Compliance with Applicable Law . In connection with this engagement, the Company will comply with all applicable federal, state and foreign securities laws and rules promulgated thereunder, and other applicable laws, rules and regulations .
 
11.            Independent Contractor . National is and at all times during the term hereof will remain an independent contractor, and nothing contained in this letter agreement will create the relationship of employer and employee or principal and agent as between the Company and National or any of its employees. Without limiting the generality of the foregoing, all final decisions with respect to matters about which National has provided services hereunder shall be solely those of the Company, and National shall have no liability relating thereto or arising therefrom. National shall have no authority to bind or act for the Company in any respect. It is understood that National responsibility to the Company is solely contractual in nature and that
 
 
 

 
 

 
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April 10, 2014
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National does not owe the Company, or any other party, any fiduciary duty as a result of its engagement.
 
12.            Successors and Assigns . This letter agreement and all obligations and benefits of the parties hereto shall bind and shall inure to their benefit and that of their respective successors and assigns. The indemnity and contribution provisions incorporated into this letter agreement are for the express benefit of the officers, directors, employees, consultants, agents and controlling persons of National and their respective successors, assigns and parent companies.
 
13.            Announcements . Upon completion of a Capital Raising, Acquisition or Sale Transaction, the Company grants to National the right to place customary announcement(s) of this engagement in certain newspapers and to mail announcement(s) to persons and firms selected by National, the whole subject to the Company’s prior approval and all costs of such announcement(s) will be borne by National.
 
14.            Governing Law and Arbitration . This agreement shall be governed by and construed under the laws of the State of New York applicable to contracts made and to be performed entirely within the State of New York. Any dispute, claim or controversy arising out of or relating to this agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by binding arbitration in the City and County of New York, before one arbitrator. The arbitration shall be administered by JAMS. Judgment on the award may be entered in any court having jurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction. Each party will bear its own costs for arbitration. The prevailing party in arbitration shall be entitled to reasonable attorneys’ fees. The provisions of this paragraph 14 shall survive any termination of this agreement.
 
EACH OF NATIONAL AND THE COMPANY (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY LAW, ON BEHALF OF ITS RESPECTIVE EQUITY HOLDERS AND CREDITORS) HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
 
15.            General Provisions . No purported waiver or modification of any of the terms of this letter agreement will be valid unless made in writing and signed by the parties hereto. Section headings used in this letter agreement are for convenience only, are not a part of this letter agreement and will not be used in construing any of the terms hereof. This letter agreement constitutes and embodies the entire understanding and agreement of the parties hereto relating to the subject matter hereof, and there are no other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by either of the parties hereto which is to be embodied in this letter agreement, and none of the parties hereto shall be bound by or liable for any alleged representation, promise, inducement or statement of intention, not so set forth herein. No provision of this letter agreement shall be construed in favor of or against either of the parties
 
 
 

 
 

 
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hereto by reason of the extent to which either of the parties or its counsel participated in the drafting hereof. If any provision of this letter agreement is held by a court of competent jurisdiction to be invalid, illegal or unenforceable, the remaining provisions hereof shall in no way be affected and shall remain in full force and effect. This letter agreement may be executed in any number of counterparts and by facsimile signature.
 
If the foregoing correctly sets forth your understanding of our agreement, please sign the enclosed copy of this letter and return it to National.
 

 
Very truly yours,
 
NATIONAL SECURITIES CORP.
 
 
By:                                                                           
Jonathan C. Rich
EVP – Director of Investment Banking



The undersigned hereby accepts, agrees to and becomes party to the foregoing letter agreement, effective as of the date first written above.
 

U-VEND, INC.

By:                                                                 

Paul Neelin
Chairman & Chief Executive Officer

 
 
 

 
 

 
 
   
ESTABLISHED 1947
Member FINRA/SIPC
 
 
APPENDIX A —DEFINITION OF TRANSACTION VALUE
 
In the context of this Agreement, “Transaction Value” means the aggregate value of all cash, cash equivalents, securities, and any other forms of payment  paid to  and actually received, directly or indirectly, by the Company or the Targeted Companies, as the case may be, and its share, option, warrant and debt holders including, without limitation payments for stock or assets sold, funds loaned to the Company or the Targeted Companies, prepaid royalties, advances against sales, licensing agreements, reimbursed NRE (non-recurring engineering) and any and all other payments that may be construed as advanced payments for products or services to be delivered in the future. In addition, the Transaction Value shall include (A) the aggregate amount of any dividends or other distributions to the shareholders of the Company or the Targeted Companies following the date of this Agreement, other than normal recurring cash dividends in amounts not materially greater than currently paid; and (B) the fair market value at the time of payment of the fees of (i) any of the Company’s or the Targeted Companies’ consolidated debt (both long-term and short-term, including capitalized leases and excluding trade liabilities or obligations, which is repaid, retired, extinguished (other than by the Company or its affiliates and/or control persons) assumed or refinanced at the closing or in anticipation of an Acquisition or Sale Transaction, as the case may be; (ii) all options, warrants, stock purchase rights or stock appreciation rights, whether or not vested, purchased or assumed by an acquirer in connection with a transaction.
 
If part or all of the Transaction Value in an Acquisition or Sale Transaction is represented by securities, the value thereof for the purpose of computing the fees shall be determined as follows:
 
(i)           For securities which are publicly traded prior to the consummation of such transaction, the average last sale price for such securities for the ten trading days prior to the consummation of such transaction;
 
(ii)           For newly-issued, publicly-traded securities, the average last sale price for such securities for ten trading days subsequent to the consummation of such transaction, with such portion of the fees being payable the eleventh trading day subsequent to the consummation of such transaction; and
 
(iii)           For securities for which no market exists, the mutual agreement of the Company and National as determined prior to the closing of such transaction.
 
If part or all of the Transaction Value is fixed amounts of cash or other consideration payable in the future, including any non-competition, but excluding employment contracts, consulting agreements, employee benefit plans or similar arrangements, then the calculation of the fees will be based on the present value of those payments discounted using Bank of America’s reference rate as the discount rate.
 

 
 

 
 
   
ESTABLISHED 1947
Member FINRA/SIPC
 
 
APPENDIX B — INDEMNIFICATION AGREEMENT
 
The Company agrees to indemnify and hold harmless National and its officers, directors, employees, consultants, attorneys, agents, affiliates, parent company and controlling persons (within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended) (National and each such other persons are collectively and individually referred to below as an "Indemnified Party") from and against any and all loss, claim, damage, liability and expense whatsoever, as incurred, including, without limitation, reasonable costs of any investigation, legal and other fees and expenses incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted, to which the Indemnified Party may become subject under any applicable federal or state law (whether in tort, contract or on any other basis) or otherwise, (i) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the private placement memorandum, registration statement (including documents, incorporated by reference) (the “Registration Statement”) or in any other written or oral communication provided by or on behalf of the Company to any actual or prospective purchaser of the securities or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) related to the performance by the Indemnified Party of the services contemplated by this letter agreement (including, without limitation, the offer and sale of the securities) and will reimburse the Indemnified Party for all expenses (including legal fees and expenses) in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not the Indemnified Party is a party.  The Company will not be liable under clause (ii) of the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court or arbitrator, not subject to appeal or further appeal, to have resulted directly from the Indemnified Party's willful misconduct or gross negligence.  The Company also agrees that the Indemnified Party shall have no liability (whether direct or indirect, in contract, tort or otherwise) to the Company related to, or arising out of, the engagement of the Indemnified Party pursuant to, or the performance by the Indemnified Party of the services contemplated by, this letter agreement except to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court or arbitrator, not subject to appeal or further appeal, to have resulted directly from the Indemnified Party's willful misconduct or gross negligence.
 
If the indemnity provided above shall be unenforceable or unavailable for any reason whatsoever, the Company, its successors and assigns, and the Indemnified Party shall contribute to all such losses, claims, damages, liabilities and expenses (including, without limitation, all costs of any investigation, legal or other fees and expenses incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted) (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and National under the terms of this letter agreement or (ii) if the allocation provided for by clause (i) of this sentence is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i), but also the relative fault of the Company and National in connection with the matter(s) as to which contribution is to be made.  The relative benefits
 

 
 

 
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April 10, 2014
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received by the Company and National shall be deemed to be in the same proportion as the fee the Company actually pays to National bears to the total value of the consideration paid or to be paid by the Company and/or the Company's shareholders in the Capital Raising, Acquisition or Sale Transaction.  The relative fault of the Company and National shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by National and the Company’s and National’s relative intent, knowledge, access to information and opportunity to correct.  The Company and National agree that it would not be just or equitable if contribution pursuant to this paragraph were determined by pro rata allocation or by any other method of allocation which does not take into account these equitable considerations. Notwithstanding the foregoing, to the extent permitted by law, in no event shall the Indemnified Party's share of such losses, claims, damages, liabilities and expenses exceed, in the aggregate, the fee actually paid to the Indemnified Party by the Company. The Company further agrees that, without National’s prior written consent, which consent will not be unreasonably withheld, it will not enter into any settlement of a lawsuit, claim or other proceeding arising out of the transactions contemplated by this agreement unless such settlement includes an explicit and unconditional release from the party bringing such lawsuit, claim or other proceeding of all such lawsuits, claims, or other proceedings against the Indemnified Parties.
 
The Indemnified Party will give prompt written notice to the Company of any claim for which it seeks indemnification hereunder, but the omission to so notify the Company will not relieve the Company from any liability which it may otherwise have hereunder except to the extent that the Company is damaged or prejudiced by such omission or from any liability it may have other than under this Appendix B. The Company shall have the right to assume the defense of any claim, lawsuit or action (collectively an "action") for which the Indemnified Party seeks indemnification hereunder, subject to the provisions stated herein with counsel reasonably satisfactory to the Indemnified Party. After notice from the Company to the Indemnified Party of its election to assume the defense thereof, and so long as the Company performs its obligations pursuant to such election, the Company will not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof at its own expense; provided, however, that the reasonable fees and expenses of such counsel shall be at the expense of the Company if (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) the named parties to any such action (including any impleaded parties) include both the Indemnified Party and the Company and the Indemnified Party shall have reasonably concluded, based on advice of counsel, that there may be legal defenses available to the Indemnified Party which are different from, or in conflict with, any legal defenses which may be available to the Company (in which event the Company shall not have the right to assume the defense of such action on behalf of the Indemnified Party, it being understood, however, that the Company shall not be liable for the reasonable fees and expenses of more than one separate firm of attorneys for all Indemnified Parties in each jurisdiction in which counsel is needed). Despite the foregoing, the Indemnified Party shall not settle any claim without the prior written approval of the Company, which approval shall not be unreasonably

 
 

 
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April 10, 2014
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withheld, so long as the Company is not in material breach of this Appendix B. Also, each Indemnified Party shall make reasonable efforts to mitigate its losses and liabilities. In addition to the Company's other obligations hereunder and without limitation, the Company agrees to pay monthly, upon receipt of itemized statements therefore, all reasonable fees and expenses of counsel incurred by an Indemnified Party in defending any claim of the type set forth in the preceding paragraphs or in producing documents, assisting in answering any interrogatories, giving any deposition testimony or otherwise becoming involved in any action or response to any claim relating to the engagement referred to herein, or any of the matters enumerated in the preceding paragraphs, whether or not any claim is made against an Indemnified Party or an Indemnified Party is named as a party to any such action.






Exhibit 10.27
 
WARRANT CERTIFICATE
 
EXERCISABLE TO ACQUIRE COMMON SHARES OF
 
U-Vend Canada, Inc.
 
(a corporation governed by the laws of Canada)
 

 
Certificate No.__________
_______ Warrants

 
["UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF, OR THE WARRANTHOLDER ("HOLDER") TO U-VEND CANADA, INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IN RESPECT THEREOF IS REGISTERED IN THE NAME OF HOLDER, OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF HOLDER, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED HOLDER HEREOF, HAS A PROPERTY INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE HEREIN AND IT IS A VIOLATION OF ITS RIGHTS FOR ANOTHER PERSON TO HOLD, TRANSFER OR DEAL WITH THIS CERTIFICATE.]
 
[Each Warrant Certificate originally issued to an "affiliate" of the Corporation (as such term is defined in Rule 144 under the U.S. Securities Act), as well as all certificates issued in exchange for or in substitution of the foregoing securities, will bear a legend to the following effect:
 
 
"THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF AGREES FOR THE BENEFIT OF U VEND CANADA, INC. (THE "COMPANY") THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE  TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT OR (D) IN ACCORDANCE WITH RULE 144 UNDER THE U.S. SECURITIES ACT, IF AVAILABLE, OR IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT, AND IN EACH CASE IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS IN THE UNITED STATES OR THE APPLICABLE SECURITIES LAWS OF ANY OTHER APPLICABLE JURISDICTIONS; PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (C) AND (D) ABOVE, A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE COMPANY, AND, IF REQUESTED BY THE COMPANY, A LEGAL OPINION SATISFACTORY TO THE TRANSFER AGENT AND THE COMPANY, MUST FIRST BE PROVIDED. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY"
 
 
 

 
 
IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD DELIVERY," MAY BE OBTAINED FROM THE TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE TRANSFER AGENT AND THE COMPANY AND, IF REQUESTED BY THE COMPANY, A LEGAL OPINION SATISFACTORY TO THE TRANSFER AGENT AND THE COMPANY. THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. "U.S. PERSON" AND "UNITED STATES" ARE AS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT."]
 
THIS IS TO CERTIFY THAT, for value received, ________________________ (the " Warrantholder ") is the registered holder of the number of common share purchase warrants (the " Warrants ") specified above of U-Vend Canada, Inc. (the " Company ") and is entitled to purchase Common Shares of the Company (" Common Shares ") as set forth in this Warrant Certificate. Each Warrant entitles the Warrantholder to purchase, at any time during the period commencing on the date hereof and ending at 5:00 p.m. (Toronto time) on September___, 2015 (the " Expiry Time "), one Common Share in the capital of the Company at a price of $0.24 per Common Share, subject to adjustment (the " Exercise Price "). The right to acquire Common Shares may only be exercised by the Holder within the time set forth above by surrendering:
 
(i) this Warrant Certificate and a duly completed subscription form (the " Subscription Form ") attached to this Warrant Certificate;
 
and
 
 (ii) a certified cheque, bank draft or money order payable at par to or to the order of U-Vend Canada, Inc. in the amount of the aggregate Exercise Price of the Common Shares subscribed for, to the Company at its principal office, prior to the Expiry Time. This Warrant Certificate and the consideration for the aggregate Exercise Price of the Common Shares subscribed for as set out above will be deemed to be duly surrendered only upon personal delivery of this Warrant Certificate or, if sent by mail or other means of transmission, upon actual receipt thereof by the Company at the office referred to above.
 
Certificates for Common Shares issued upon subscription of Warrants will be mailed, postage prepaid, to the Person or Persons specified in the Subscription Form at the respective address or addresses specified therein, or if so specified in such Subscription Form, delivered to such Person or Persons for pick-up.
 
The Warrantholder may exercise the right to purchase Common Shares attached to fewer Warrants than are represented by this Warrant Certificate. In such a case, the Warrantholder will be entitled to receive a new Warrant Certificate representing the Warrants not then exercised. A fraction of a Warrant may not be exercised and fractional Common Shares will not be issued.
 
 
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The Warrantholder acknowledges that the Warrants represented by this certificate and the Common Shares issuable upon exercise hereof may be offered, sold or otherwise transferred only in compliance with all applicable securities laws. The Warrantholder further acknowledges that the issuance of the Common Shares upon exercise of the Warrants must be exempt from the registration requirements of the U.S. Securities Act, and that, if the Warrantholder exercises the Warrants in the United States, or is or is acting for the account or benefit of a U.S. Person, it will be a condition to the exercise of the Warrants that the Warrantholder deliver a duly executed declaration and, if requested by the  Company, in each case in a form satisfactory to the Company, to the effect that the Common Shares may be issued to the Warrantholder upon exercise thereof without registration under the U.S. Securities Act.
 
The Warrants represented by this certificate are issued under and pursuant to a term sheet dated as of September __, 2013 between the Company and the Warrantholders. By acceptance of this Warrant Certificate, the Holder assents to all provisions of the term sheet. Capitalized terms used in this Warrant Certificate which are not defined in this Warrant Certificate but are defined in the term sheet have the meanings in this Warrant Certificate as ascribed to them in the term sheet. In the event of any conflict between the provisions of this Warrant Certificate and the provisions of the term sheet, the provisions of the Warrant Certificate will govern.
 
Without limiting the generality of the foregoing, no Common Shares will be issued pursuant to the exercise of any Warrant if the exercise of the Warrants or the issuance of the underlying Common Shares would constitute a violation of the securities laws of any applicable jurisdiction other than the Qualifying Jurisdictions. The Person or Persons in whose name or names the Common Shares issuable upon the exercise of the Warrants are to be issued will be deemed for all purposes (except as provided in the Indenture) to be the Holder or Holders of record of such Common Shares. The Subscription Form will be signed by the Holder and will specify the Person(s) in whose name(s) the Common Shares are to be issued, the address(es) of such Person(s) and the number of Common Shares to be issued to each Person, if more than one is so specified. If any of the Common Shares subscribed for are to be issued to a Person or Persons other than the Holder, the Holder shall comply with such reasonable requirements as the Warrant Agent may prescribe and the Holder will pay to the Company, or the Warrant Agent on behalf of the Corporation, all applicable transfer or similar taxes and the Corporation will not be required to issue or deliver certificates evidencing Common Shares, unless or until the Holder will have paid to the Corporation, or the Warrant Agent on behalf of the Corporation, the amount of such taxes or will have established to the satisfaction of the Corporation, acting reasonably, that such taxes have been paid or that no tax is due.
 
The Indenture provides for certain adjustments in the number of Common Shares or property which the Warrantholder is entitled to receive upon exercise of Warrants on payment of certain dividends, distributions or any subdivision, consolidation, reclassification or alteration of the outstanding Common Shares of the Corporation or after certain other events specified in the Indenture. The holding of the Warrants evidenced by this Warrant Certificate will not constitute the Holder of this Warrant Certificate a Shareholder of the Corporation or entitle the Holder to any right or interest in respect thereof except as expressly provided in the Indenture or in this Warrant Certificate.
 
 
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The Indenture provides that, subject to certain limited exceptions, all Warrantholders will be bound by any resolution passed at a meeting of the Warrantholders held in accordance with the provisions of the Indenture and by (a) any resolution that is not an Extraordinary Resolution signed by Warrantholders representing at least a majority of the aggregate number of Warrants then outstanding, or (b) any Extraordinary Resolution signed by Warrantholders representing at least 662/3% of the aggregate number of Warrants then outstanding.
 
The Warrants evidenced by this Warrant Certificate may only be transferred in accordance with the securities laws of any applicable jurisdiction, applicable requirements of the TSX and upon executing the Transfer Form attached hereto and, subject thereto, may be transferred on the register kept at the Warrant Agency by the registered Holder hereof or its legal representatives or its attorney duly appointed by an instrument in writing in form and execution satisfactory to the Warrant Agent, only upon compliance with the conditions prescribed in the Indenture and upon compliance with such reasonable requirements as the Warrant Agent may prescribe.
 
Time is of the essence of this Warrant Certificate. This Warrant Certificate is governed by and will be construed in accordance with the laws of Canada applicable therein. The parties hereto confirm their express wish that this Warrant Certificate and all documents and agreements directly or indirectly relating thereto be drawn up in the English language. Les parties reconnaissent leur volonté expresse que le présent certificat ainsi que tous les documents et contrats s'y rattachant directement ou indirectement soient rédigés en anglais.
 
This Warrant Certificate will not be valid for any purpose whatever unless and until it has been certified by or on behalf of the Company.
 
 
IN WITNESS WHEREOF , the Company has caused this Warrant Certificate to be signed by its duly authorized signatory.
 
U-VEND  CANADA, INC.
 
Per:___________________________
         Authorized Signing Officer

 

 

 
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TRANSFER OF WARRANTS

TO: U-VEND CANADA, INC.

ANY TRANSFER OF WARRANTS WILL REQUIRE COMPLIANCE WITH APPLICABLE SECURITIES LEGISLATION. THE COMPANY IS ENTITLED, AND MAY DIRECT COMPANY COUNSEL, TO REFUSE TO RECOGNIZE ANY TRANSFER OF ANY WARRANT IF SUCH TRANSFER, OR THE ISSUE OF COMMON SHARES ON EXERCISE OF SUCH WARRANT FOLLOWING SUCH TRANSFER, WOULD (1) CONSTITUTE A VIOLATION OF THE SECURITIES LAWS OF ANY APPLICABLE JURISDICTION, OR (2) CONSTITUTE A VIOLATION OF THE RULES, REGULATIONS OR POLICIES OF ANY REGULATORY AUTHORITY HAVING JURISDICTION. TRANSFERORS AND TRANSFEREES ARE URGED TO CONTACT ITS OWN LEGAL COUNSEL BEFORE EFFECTING ANY SUCH TRANSFER.


FOR VALUE RECEIVED , the undersigned hereby sells, assigns and transfers to ________________________________________________________________________
(Please print or type name and address of Assignee)

___________ Warrants of U-Vend Canada, Inc. in the name of the undersigned on the records of the Company represented by the Warrant Certificate attached and irrevocably appoints ____________________________ the attorney of the undersigned to transfer the said Warrants on the books of the Company with full power of substitution in the premises.

DATED the ______ day of _______________, 20____ .

_________________________________
_______________________________________
Signature Guaranteed by
(Signature of Warrantholder)


_______________________________________
(Print Name of Warrantholder in Full)
 
 
_______________________________________
(Print Address in Full)


Instructions:

 
1.
Signature of the Warrantholder must be the signature of the Person appearing on the face of this Warrant Certificate.

 
2.
If the Transfer Form is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a fund or any other Person acting in a fiduciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Company.

 
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3.
The signature on the Transfer Form must, in certain circumstances, be signature guaranteed or medallion guaranteed or signature and authority to sign guaranteed by an authorized officer of a Canadian Schedule 1 Bank (within the meaning of the Bank Act (Canada)), a major trust company or a member of the Securities Transfer Agents Medallion Program (STAMP)

 
4.
Warrants will only be transferable in accordance with Applicable Laws.


The signature(s) on this form must be guaranteed by one of the following methods:


Canada and the USA: A Medallion Signature Guarantee obtained from a member of an acceptable Medallion Signature Guarantee Program (STAMP, SEMP, MSP). Many commercial banks, savings banks, credit unions, and all broker dealers participate in a Medallion Signature Guarantee Program. The Guarantor must affix a stamp bearing the actual words "Medallion Guaranteed".


Canada: A Signature Guarantee obtained from a major Canadian Schedule 1 Bank (within the meaning of the Bank Act (Canada)). The Guarantor must affix a stamp bearing the actual words "Signature Guaranteed". Signature Guarantees are not accepted from Treasury Branches, Credit Unions or Caisse Populaires unless they are members of a Medallion Signature Guarantee Program.


Outside North America: For Holders located outside North America, present the certificate(s) and/or document(s) that require a guarantee to a local financial institution that has a corresponding Canadian or American affiliate which is a member of an acceptable Medallion Signature Guarantee Program. The corresponding affiliate will arrange for the signature to be over6guaranteed.

 
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SUBSCRIPTION FORM

TO: U-VEND CANADA, INC.

The undersigned Holder of the within purchase warrants (the " Warrants ") hereby subscribes for _________ Common Shares of U-Vend Canada, Inc. (the " Company ") (or such number of other securities or property at such other price to which such Warrants entitle the undersigned in lieu of this Indenture or in addition thereto under the provisions of the Indenture) in accordance with and subject to the provisions of the Warrants and the Indenture.

The undersigned Holder encloses and tenders herewith a certified cheque, bank draft or money order payable at par to or to the order of U-Vend Canada, Inc. in lawful money of Canada for the aggregate subscription price of $ ____________, representing an amount equal to $0.24 (or a price as adjusted) in respect of each Common Share to be issued.

The undersigned hereby:

(a) confirms that it is not a U.S. Person, and is not subscribing for Common Shares in the United States or for the account or benefit of a U.S. Person or a Person in the United States; OR

(b) has attached to this Subscription Form (i) a duly executed letter substantially in the form attached confirming the status of the undersigned as an "accredited investor" within the meaning of Rule 501(a)(4) of Regulation D of the U.S. Securities Act of 1933, as amended (the " U.S. Securities Act ") and certain other matters or (ii) an Opinion of Counsel, to the effect that the Common Shares have been registered under the U.S. Securities, or that upon exercise of this Warrant Certificate the Common Shares may be issued to the Holder without registration under the U.S. Securities Act .

The undersigned hereby directs that the said securities or property be registered as follows:

Registration Instructions

Name(s) in Full
Address(es)
Number of Common Shares
     
     
     
     


Please print the full name in which security certificates are to be issued.

 
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o    Please check this box if the share certificate(s) is to be delivered at the principal office of the Company where the within Warrant Certificate is surrendered, failing which the certificate(s) will be mailed, postage prepaid, to the address(es) specified below.

DATED this ______ day of ________________, ______.


_____________________________________________
Signature of Warrantholder


_____________________________________________
Signature Guaranteed by:


Print name and address of Holder in full below:


Name:
__________________________________________
Address:
__________________________________________
(including Postal or Zip Code)
__________________________________________
Social Insurance Number
__________________________________________


Instructions:

1. The registered Holder may exercise its right to subscribe for Warrants by completing this form and surrendering this form, the Warrant Certificate representing the Warrants being exercised, and the subscription price to:

U-Vend Canada, Inc.:

(by mail)

U-Vend Canada, Inc.
Insert Address
Insert Address
Insert Address

2. Certificates for Common Shares will be delivered or mailed as soon as practicable after the exercise of the Warrants.

3. If the Subscription Form indicates that Common Shares are to be issued to a Person or Persons other than the registered Holder of the Warrant Certificate, the signature of such Holder of the Exercise Form must be signature guaranteed by an authorized officer of a Canadian Schedule 1 Bank (within the meaning of the Bank Act (Canada)) or a member of the Securities Transfer Agents Medallion Program (STAMP).

 
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4. Please print the full name(s) in which the Common Shares are to be issued. If any Common Shares are to be issued to a Person or Persons other than the Warrantholder, the Warrantholder must pay to the Warrant Agent all exigible transfer taxes or other governmental charges and sign the form of Transfer.

5. If the Subscription Form is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any other Person acting in a fiduciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Transfer Agent and the Company.


 
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Form of Letter to be Delivered
by Original U.S. Purchaser
upon Exercise of Warrants

 

U-Vend Canada, Inc.
Insert Address
Insert Address
Insert Address


Dear Sirs:

We are delivering this letter in connection with the purchase of common shares (the "Common Shares") of U-Vend Canada, Inc. (the "Company"), a corporation existing under the laws of Canada, upon the exercise of warrants of the Company ("Warrants"), issued pursuant to a term sheet dated as of September ___, 2013 between the Company and the Warrantholder.

We hereby confirm that:

(a) we are (check one):

o (i) an institutional "accredited investor" within the meaning of Rule 501 (a)(1),(2),(3) or (7) of Regulation D under the United States Securities Actof 1933 (the "U.S. Securities Act"); or
 
o (ii) an accredited investor within the meaning of Rule 501(a)(4) of Regulation D under the U.S. Securities Act;

(b) we are purchasing the Common Shares for our own account;

(c) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing the Common Shares;

(d) we are not acquiring the Common Shares with a view to distribution thereof or with any present intention of offering or selling any of the Common Shares, except (A) to the Corporation, (B) outside the United States in accordance with Rule 904 under the U.S. Securities Act or (C) inside the United States (1) in accordance with Rule 144A under the U.S. Securities Act and in compliance with applicable state securities laws or (2) in accordance with Rule 144 under the U.S. Securities Act, if applicable, and in compliance with applicable state securities laws;

(e) we acknowledge that we have had access to such financial and other information as we deem necessary in connection with our decision to purchase the Common Shares; and

(f) we acknowledge that we are not purchasing the Common Shares as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio, television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising.

 
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We understand that the Common Shares are being offered in a transaction not involving any public offering within the United States within the meaning of the U.S. Securities Act and that the Common Shares have not been and will not be registered under the U.S. Securities Act. We further understand that any Common Shares acquired by us (A) if we checked (a)(i) above, will be identified by a CUSIP number that is different from the CUSIP number that identifies the Common Shares sold to non-U.S. Persons outside of the United States, or (B) if we checked (a)(ii) above, will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of paragraph (d) above.

We acknowledge that you will rely upon our confirmations, acknowledgments and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate or complete.


_________________________________________
(Name of Purchaser)
 
By: _________________________________________
Name: ______________________________________
Title: _______________________________________
Address: ____________________________________
                 ____________________________________


 
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NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 
Internet Media Services/U-Vend, Inc.
 
Series [] Warrant To Purchase Common Stock
 
Warrant No.:  []-
 
Date of Issuance: ____________ (“ Issuance Date ”)
 
Internet Media Services, Inc., a Delaware corporation and U-Vend, Inc., an Ontario Canada corporation ( collectively, the “ Company ”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, _________________ , the registered holder hereof or its permitted assigns (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “ Warrant ”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), 300,000,000 (subject to adjustment as provided herein) fully paid and non-assessable shares of Common Stock (as defined below)   (the “ Warrant Shares ”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the Warrants to Purchase Common Stock (the “ SPA Warrants ”) issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of June 18, 2013 (the “ Subscription Date ”), by and among the Company and the investors (the “ Buyers ”) referred to therein (the “ Securities Purchase Agreement ”).
 
1.
EXERCISE OF WARRANT .
 
(a)            Mechanics of Exercise . Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on any day on or after the Issuance Date, in whole or in part, by delivery (whether via facsimile or otherwise) of a written notice, in the form attached hereto as Exhibit A (the “ Exercise Notice ”), of the Holder’s election to exercise this Warrant. Within one (1) Trading Day following an exercise of this Warrant as aforesaid, the Holder shall deliver payment to the Company of an amount equal to the Exercise Price in
 
 
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effect on the date of such exercise multiplied by the number of Warrant Shares as to which this Warrant was so exercised (the “ Aggregate Exercise Price ”) in cash or via wire transfer of immediately available funds if the Holder did not notify the Company in such Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder. Execution and delivery of an Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of an Exercise Notice for all of the then-remaining Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof. On or before the first (1 st ) Trading Day following the date on which the Company has received an Exercise Notice, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of such Exercise Notice, in the form attached hereto as Exhibit B , to the Holder and the Company’s transfer agent (the “ Transfer Agent ”). On or before the third (3 rd ) Trading Day following the date on which the Company has received such Exercise Notice, the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/ Withdrawal at Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise Notice, the Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee (as indicated in the applicable Exercise Notice), for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of an Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be). If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then, at the request of the Holder, the Company shall as soon as practicable and in no event later than three (3) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all taxes and fees which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.  Notwithstanding the foregoing, except in the case where an exercise of this Warrant is validly made pursuant to a Cashless Exercise (as defined in Section 1(d)), the Company’s failure to deliver
 
 
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Warrant Shares to the Holder on or prior to the second (2nd) Trading Day after the Company’s receipt of the Aggregate Exercise Price shall not be deemed to be a breach of this Warrant.
 
(b)            Exercise Price . For purposes of this Warrant, “ Exercise Price ” means $_______, subject to adjustment as provided herein.
 
(c)            Company’s Failure to Timely Deliver Securities . If the Company shall fail, for any reason or for no reason, to issue to the Holder within the later of (i) three (3) Trading Days after receipt of the applicable Exercise Notice and (ii) two (2) Trading Days after the Company’s receipt of the Aggregate Exercise Price (or valid notice of a Cashless Exercise) (such later date, the “ Share Delivery Deadline ”), a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant (as the case may be) (a “ Delivery Failure ”) and if on or after such Share Delivery Deadline the Holder (or any other Person in respect, or on behalf, of the Holder) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, issuable upon such exercise that the Holder so anticipated receiving from the Company, then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other Person in respect, or on behalf, of the Holder) (the “ Buy-In Price ”), at which point the Company’s obligation to so issue and deliver such certificate or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder (as the case may be) (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the lowest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Exercise Notice and ending on the date of such issuance and payment under this clause (ii).
 
(d)            Disputes .  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms hereof, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.
 
(e)            Limitations on Exercises   Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable by the Holder hereof to the extent (but only to the
 
 
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extent) that the Holder or any of its affiliates would beneficially own in excess of 4.99% (the “ Maximum Percentage ”) of the Common Stock. To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be exercisable (as among all such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. For the purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Warrant or securities issued pursuant to the Securities Purchase Agreement.  By written notice to the Company, any Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder sending such notice and not to any other holder of SPA Warrants.
 
(h)            Insufficient Authorized Shares . The Company shall at all times keep reserved for issuance under this Warrant a number of shares of Common Stock as shall be necessary to satisfy the Company’s obligation to issue shares of Common Stock hereunder (without regard to any limitation otherwise contained herein with respect to the number of shares of Common Stock that may be acquirable upon exercise of this Warrant). If, notwithstanding the foregoing, and not in limitation thereof, at any time while any of the SPA Warrants remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock (an “ Authorized Share Failure ”) to satisfy its obligation to reserve for issuance upon exercise of the SPA Warrants at least a number of shares of Common Stock equal to the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the SPA Warrants then outstanding (the “ Required Reserve Amount ”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the SPA Warrants then outstanding. Without limiting the
 
 
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generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.
 
2.            ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.
 
(a)            Stock Dividends and Splits . Without limiting any provision of Section 2(b) or Section 4, if the Company, at any time on or after the date of the Securities Purchase Agreement, (i) pays a stock dividend on one or more classes of its then outstanding shares of Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.
 
(b)            Adjustment Upon Issuance of Shares of Common Stock .   If and whenever on or after the date of the Securities Purchase Agreement, the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities issued or sold or deemed to have been issued or sold) for a consideration per share (the “ New Issuance Price ”) less than a price equal to the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale (such Exercise Price then in effect is referred to as the “ Applicable Price ”) (the foregoing a “ Dilutive Issuance ”), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price.  For all purposes of the foregoing (including, without limitation, determining the adjusted Exercise Price and consideration per share under this Section 2(b)), the following shall be applicable:
 
 
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(i)            Issuance of Options . If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(b)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.
 
(ii)            Issuance of Convertible Securities . If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section 2(b)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock
 

 
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upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(b), except as contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issue or sale.
 
(iii)            Change in Option Price or Rate of Conversion . If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(b) shall be made if such adjustment would result in an increase of the Exercise Price then in effect.
 
(iv)            Calculation of Consideration Received . If any Option or Convertible Security or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company, together comprising one integrated transaction, (x) such Option or Convertible Security (as applicable) or Adjustment Right (as applicable) will be deemed to have been issued for consideration equal to the Black Scholes Consideration Value thereof and (y) the other securities issued or sold or deemed to have been issued or sold in such integrated transaction shall be deemed to have been issued for consideration equal to the difference of (I) the aggregate consideration received or receivable by the Company minus (II) the Black Scholes Consideration Value of each such Option or Convertible Security (as applicable) or Adjustment Right (as applicable).  If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will
 
 
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be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “ Valuation Event ”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10 th ) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
 
(v)            Record Date . If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).
 
(c)            Number of Warrant Shares . Simultaneously with any adjustment to the Exercise Price pursuant to this Section 2, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein).
 
(d)            Holder's Right of Alternative Exercise Price Following Issuance of Certain Options or Convertible Securities .  In addition to and not in limitation of the other provisions of this Section 2, if the Company in any manner issues or sells any Options or Convertible Securities (any such securities, “ Variable Price Securities ”) after the Subscription Date that are convertible into or exchangeable or exercisable for shares of Common Stock at a price which varies or may vary with the market price of the Common Shares, including by way of one or more reset(s) to a fixed price, but exclusive of such formulations reflecting customary anti-dilution provisions (such as share splits, share combinations, share dividends and similar transactions) (each of the formulations for such variable price being herein referred to as, the “ Variable Price ”), the Company shall provide written notice thereof via facsimile and overnight courier to the Holder on the date of issuance of such Convertible Securities or Options.  From and after the date the Company issues any such Convertible Securities or Options with a Variable Price, the Holder shall have the right, but not the obligation, in its sole discretion to substitute the Variable Price for the Exercise Price upon exercise of this Warrant by designating in the Exercise Notice delivered upon any exercise of this Warrant that solely for purposes of such exercise the Holder is relying on the Variable Price rather than the Exercise Price then in effect.  The Holder's election to rely on a Variable
 
 
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Price for a particular exercise of this Warrant shall not obligate the Holder to rely on a Variable Price for any future exercises of this Warrant.
 
(e)            Stock Combination Event Adjustment .   If at any time and from time to time on or after the Issuance Date there occurs any stock split, stock dividend, stock combination recapitalization or other similar transaction involving the Common Stock (each, a “ Stock Combination Event ”) and the product of (i) the quotient determined by dividing (A) the Exercise Price in effect immediately prior to the Stock Combination Event by (B) the arithmetic average of the Weighted Average Price during the fifteen (15) Trading Days immediately prior to the Stock Combination Event; and (ii) the arithmetic average of the Weighted Average Price during the fifteen (15) Trading Days immediately following the date of such Stock Combination Event (each, an “ Event Market Price ”) is less than the Exercise Price then in effect (after giving effect to the adjustment in clause (b) above), then on the sixteenth (16th) Trading Day immediately following such Stock Combination Event, the Exercise Price then in effect on such sixteenth (16th) Trading Day (after giving effect to the adjustment in clause (b) above) shall be reduced (but in no event increased) to the Event Market Price.  For the avoidance of doubt, if the adjustment in the immediately preceding sentence would otherwise result in an increase in the Exercise Price hereunder, no adjustment shall be made.
 
(f)            Other Events . In the event that the Company (or any Subsidiary (as defined in the Securities Purchase Agreement)) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith determine and implement an appropriate adjustment in the Exercise Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder, provided that no such adjustment pursuant to this Section 2(f) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s board of directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.
 
(g)            Calculations . All calculations under this Section 2 shall be made by rounding to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
 
(h)            Adjustment . If immediately following the close of business on the twenty-sixth consecutive Trading Day immediately following  (i) such date the applicable Registration Statement filed pursuant to the Registration Rights Agreement shall be effective and the prospectus contained therein shall be available for the resale by the Holder of all of the Registrable Securities (which, solely for
 
 
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clarification purposes, includes all shares of Common Stock issuable upon conversion of the Notes or otherwise pursuant to the terms of the Notes and upon exercise of the SPA Warrants (without regard for any limitations on conversion, issuance or exercise set forth therein) in accordance with the terms of the Registration Rights Agreement) or, (ii) if earlier, each of (x)  June 18, 2014 or such later date thereafter when the Company shall have satisfied its current public information requirement under Rule 144(c)(1) and (y) the initial Effective Date (as defined in the Registration Rights Agreement) (each, as applicable, an “ Adjustment Date ”), the Exercise Price then in effect exceeds the Adjusted Market Price as of such Adjustment Date (the " Adjusted Exercise Price "), the Exercise Price hereunder shall be reset to the Adjusted Exercise Price as of such Adjustment Date (each, an “ Exercise Price Adjustment ”).  Notwithstanding the foregoing, to the extent the Holder delivers one or more Exercise Notices to the Company during the Adjusted Market Price Measuring Period with respect to a Exercise Price Adjustment, in addition to the shares of Common Stock issued or issuable to the Holder with respect to each such Exercise Notice, on the later of (A) the applicable Share Delivery Date with respect to such Exercise Notice and (B) the applicable Adjustment Date, the Holder shall receive an additional number of shares of Common Stock equal to the difference of (x) the quotient of (I) the Exercise Amount with respect to such Exercise Notice, divided by (II) the Adjusted Exercise Price, less (y) the number of shares of Common Stock issued or otherwise issuable to the Holder with respect to such Exercise Notice.  Except as otherwise provided in this Section 2(h), the Adjusted Exercise Price, if any, shall not apply to any Exercise Amount converted into Common Stock prior to such Adjustment Date.
 
3.            RIGHTS UPON DISTRIBUTION OF ASSETS . In addition to any adjustments pursuant to Section 2 above, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distributions would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such Distribution to such extent) and such Distribution to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).
 
4.     PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS .
 
(a)            Purchase Rights .  In addition to any adjustments pursuant to Section 2 above, if at any
 
 
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time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).
 
(b)            Fundamental Transactions .  The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents (as defined in the Securities Purchase Agreement) in accordance with the provisions of this Section 4(b), including agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction) and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. Upon the consummation of each Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of the applicable Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of each Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the applicable Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of this
 
 
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Warrant prior to the applicable Fundamental Transaction, such shares of publicly traded common stock (or its equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of the applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the exercise of this Warrant), as adjusted in accordance with the provisions of this Warrant. Notwithstanding the foregoing, and without limiting Section 1(f) hereof, the Holder may elect, at its sole option, by delivery of written notice to the Company to waive this Section 4(b) to permit the Fundamental Transaction without the assumption of this Warrant.  In addition to and not in substitution for any other rights hereunder, prior to the consummation of each Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “ Corporate Event ”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the applicable Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of the applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the exercise of this Warrant).
 
(c)            Black Scholes Value . Notwithstanding the foregoing and the provisions of Section 4(b) above, at the request of the Holder delivered at any time commencing on the earliest to occur of (x) the public disclosure of any Fundamental Transaction, (y) the consummation of any Fundamental Transaction and (z) the Holder first becoming aware of any Fundamental Transaction through the date that is ninety (90) days after the public disclosure of the consummation of such Fundamental Transaction by the Company pursuant to a Current Report on Form 8-K filed with the SEC, the Company or the Successor Entity (as the case may be) shall purchase this Warrant from the Holder on the date of such request by paying to the Holder cash in an amount equal to the Black Scholes Value.
 
(d)            Application . The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied as if this Warrant (and any such subsequent warrants) were fully exercisable and without regard to any limitations on the exercise of this Warrant (provided that the Holder shall continue to be entitled to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter receivable upon exercise of this Warrant (or any such other warrant)).
 
5.            NONCIRCUMVENTION . The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation (as defined in the Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this
 
 
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Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any limitations on exercise).
 
6.            WARRANT HOLDER NOT DEEMED A STOCKHOLDER . Except as otherwise specifically provided herein, the Holder, solely in its capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in its capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.
 
7.            REISSUANCE OF WARRANTS .
 
(a)            Transfer of Warrant . If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.
 
(b)            Lost, Stolen or Mutilated Warrant . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this
 
 
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Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
 
(c)            Exchangeable for Multiple Warrants . This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, no warrants for fractional shares of Common Stock shall be given.
 
(d)            Issuance of New Warrants . Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
 
8.            NOTICES . Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s) and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder and (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of its Subsidiaries, the Company shall simultaneously file such notice with the SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 8-K. It is expressly understood and agreed that the time of execution specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.
 
 
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9.            AMENDMENT AND WAIVER .  Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f)) may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.
 
10.            SEVERABILITY .  If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
 
11.            GOVERNING LAW . This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
 
12.            CONSTRUCTION; HEADINGS . This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof.  The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this
 
 
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Warrant. Terms used in this Warrant but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Initial Closing Date (as defined in the Securities Purchase Agreement) in such other Transaction Documents unless otherwise consented to in writing by the Holder.
 
13.            DISPUTE RESOLUTION . In the case of a dispute as to the determination of the Exercise Price, the Closing Sale Price or fair market value or the arithmetic calculation of the Warrant Shares (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute (including, without limitation, as to whether any issuance or sale or deemed issuance or sale was an issuance or sale or deemed issuance or sale of Excluded Securities). If the Holder and the Company are unable to agree upon such determination or calculation (as the case may be) of the Exercise Price, the Closing Sale Price or fair market value or the number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed determination of the Exercise Price, the Closing Sale Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to an independent, outside accountant selected by the Holder that is reasonably acceptable to the Company. The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.
 
14.            REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF . The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Warrant. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, exercises and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and
 
 
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without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant (including, without limitation, compliance with Section 2 hereof). The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.
 
15.            TRANSFER . This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company, except as may otherwise be required by Section 2(g) of the Securities Purchase Agreement.
 
16.            CERTAIN DEFINITIONS .  For purposes of this Warrant, the following terms shall have the following meanings:
 
(a)           “ Adjusted Market Price ” means, for any given date, the greater of (i) $0.__ (as adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions ) and (ii) the lesser of (x) the initial Conversion Price (as defined in the Notes) and (y) 80% of the quotient of (I) the sum of the VWAP of the Common Stock for each of the Trading Days during the ten (10) consecutive Trading Day period ending and including the Trading Day immediately prior to such given date, divided by (II) ten (10) (such period, the “ Adjusted Market Price Measuring Period ”).  All such determinations to be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such Adjusted Market Price Measuring Period.]
 
(c)           “ Adjustment Right ” means any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 2) of shares of Common Stock (other than rights of the type described in Section 3 and 4 hereof) that could result in a decrease in the net consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).
 
(d)           “ Approved Stock Plan ” means any benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the date hereof pursuant to which shares of Common Stock, options to purchase Common Stock and other equity incentive awards may be issued to any employee, officer, director, consultant or endorser for services provided to the Company in their capacity as such.
 
(e)           “ Black Scholes Consideration Value ” means the value of the applicable Option or Convertible Security (as the case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the
 
 
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issuance of such Option or Convertible Security (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option or Convertible Security (as the case may be) as of the date of issuance of such Option or Convertible Security (as the case may be), (iii) a zero cost of borrow and (iv) an expected volatility equal to the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option or Convertible Security (as the case may be).
 
(f)           “ Black Scholes Value ” means the value of the unexercised portion of this Warrant remaining on the date of the Holder’s request pursuant to Section 4(c), which value is calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the greater of (1) the highest Closing Sale Price of the Common Stock during the period beginning on the Trading Day immediately preceding the earliest to occur of (x) the public disclosure of the applicable Fundamental Transaction, (y) the consummation of the applicable Fundamental Transaction and (z) the date on which the Holder first became aware of the applicable Fundamental Transaction and ending on the Trading Day of the Holder’s request pursuant to Section 4(c) and (2) the sum of the price per share being offered in cash in the applicable Fundamental Transaction (if any) plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction (if any), (ii) a strike price equal to the Exercise Price in effect on the date of the Holder’s request pursuant to Section 4(c), (iii) a zero cost of borrow, (iv) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the greater of (1) the remaining term of this Warrant as of the date of the Holder’s request pursuant to Section 4(c) and (2) the remaining term of this Warrant as of the date of consummation of the applicable Fundamental Transaction or as of the date of the Holder’s request pursuant to Section 4(c) if such request is prior to the date of the consummation of the applicable Fundamental Transaction, and (v) an expected volatility equal to the 30 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public disclosure of the applicable Fundamental Transaction (or, solely to the extent such Fundamental Transaction is not disclosed to the public, the date of the consummation of the such Fundamental Transaction).
 
(g)           “ Bloomberg ” means Bloomberg, L.P.
 
(h)           “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.
 
(i)           “ Closing Sale Price ” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing does not apply, the last trade price of such security
 
 
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in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.
 
(j)           “ Common Stock ” means (i) the Company’s shares of common stock, $0.01 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
 
(k)           “ Convertible Securities ” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.
 
(l)           “ Eligible Market ” means The New York Stock Exchange, the NYSE Amex, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or the Principal Market.
 
(m)           “ Excluded Securities ” means any (i) shares of Common Stock or standard options to purchase Common Stock to directors, officers or consultants, endorsers or employees of the Company in their capacity as such pursuant to an Approved Stock Plan, provided that (A) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the date hereof pursuant to this clause (i) do not, in the aggregate, exceed more than 15% of the Common Stock issued and outstanding immediately prior to the date hereof and (B) the exercise price of any such options is not lowered after issuance by subsequent amendment thereof, none of such options are amended subsequent to issuance to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are subsequent to issuance otherwise materially changed in any manner that adversely affects any of the Buyers; (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities or contractual (other than options to purchase Common Stock or other equity incentive awards issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the date hereof, provided that the conversion price of any such Convertible Securities (other than options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered by subsequent amendment, none of such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are subsequently amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities (other than options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by
 
 
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clause (i) above) are otherwise materially changed in any manner that adversely affects any of the Buyers; (iii) the shares of Common Stock issuable upon conversion of the Notes or otherwise pursuant to the terms of the Notes; (iv) the shares of Common Stock issuable upon exercise of the SPA Warrants and (v) in connection with strategic alliances, acquisitions, mergers, and strategic partnerships, provided, that (A) the primary purpose of such issuance is not to raise capital as determined in good faith by the Company’s board of directors, (B) the purchaser or acquirer of the securities in such issuance solely consists of either (x) the actual participants in such strategic alliance or strategic partnership, (y) the actual owners of such assets or securities acquired in such acquisition or merger or (z) the stockholders, partners or members of the foregoing Persons and (C) number or amount of securities issued to such Person by the Company shall not be disproportionate to either (x) the fair market value of such Person’s actual contribution to such strategic alliance or strategic partnership or (y) the proportional ownership of such assets or securities to be acquired by the Company, as applicable.
 
(n)           “ Expiration Date ” means the date that is the end of the 15 month  of the Initial Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “ Holiday ”), the next date that is not a Holiday.
 
(o)           “ Fundamental Transaction ” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify the Common Stock, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.
 
(p)           “ Notes ” has the meaning ascribed to such term in the Securities Purchase Agreement, and shall include all notes issued in exchange therefor or replacement thereof.
 
(q)           “ Options ” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.
 
 
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(r)           “ Parent Entity ” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.
 
(s)           “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.
 
(t)           “ Principal Market ” means the OTCQB Market.
 
(u)           “ Successor Entity ” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.
 
(v)           “ Trading Day ” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder.
 
(w)           “ Voting Stock ” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).
 
(x)           “ VWAP ” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If
 
 
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VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such period.
 
[ signature page follows ]
 

 
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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.
 
INTERNET MEDIA SERVICES/U-VEND, INC.
By: __________________________________
Name:
Title:

 

 
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EXHIBIT A
 
EXERCISE NOTICE
 
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
 
WARRANT TO PURCHASE COMMON STOCK
 
INTERNET MEDIA SERVICES/U-VEND, INC.
 
The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“ Warrant Shares ”) of Internet Media Services, Inc., a Delaware corporation and U-Vend, Inc., an Ontario Canada corporation(collectively, the “ Company ”), evidenced by the Warrant to Purchase Common Stock No. _______ (the “ Warrant ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
 
1.            Form of Exercise Price .  The Holder intends that payment of the Exercise Price shall be made as:
 
 
____________
a “ Cash Exercise ” with respect to _________________ Warrant Shares.
 
2.            Payment of Exercise Price . In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.
 
3.            Delivery of Warrant Shares .  The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant.  Delivery shall be made to Holder, or for its benefit, to the following address:
 
_______________________
 
_______________________
 
_______________________
 
_______________________
 
Date: _______________ __, ______
 

 
   Name of Registered Holder
 
By:  ___________________________         
 
     Name: 
     Title:
 

 
 

 

EXHIBIT B
 
ACKNOWLEDGMENT
 
The Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated _________, 2013, from the Company and acknowledged and agreed to by _______________.
 
 
INTERNET MEDIA SERVICES/U-VEND, INC.
By: __________________________________
Name:
Title:
 
 
 
 



Exhibit 10.28

 
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT (THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR UNDER ANY STATE SECURITIES LAWS (“BLUE SKY LAWS”). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE BLUE SKY LAWS OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL WILL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT NO REGISTRATION IS REQUIRED BECAUSE OF THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY LAWS.
 
WARRANT
 
To Purchase ________ Shares of Common Stock
of
U-VEND INTERNATIONAL, INC.
 
EXERCISABLE ON OR BEFORE, AND VOID AFTER
5:00 P.M. EASTERN TIME ON ________, 2016 (Three years from issuance)
 
THIS CERTIFIES THAT, for good and valuable consideration, Automated Retail Leasing Partners, LP (“ Holder ”), or its registered assigns, is entitled to subscribe for and purchase from U-VEND INTERNATIONAL,INC., a Delaware corporation (the “ Company ”), at any time after _________, 2013, to and including __________, 2016, _________________ (___,____) fully paid and non-assessable shares of the Common Stock of the Company (“ Shares ”) at the price of $0.__ per Share (the “ Warrant Exercise Price ”), subject to the anti-dilution provisions of this Warrant.
 
The Shares that may be acquired upon exercise of this Warrant are sometimes referred to herein as the “ Warrant Shares .” As used herein, the term “ Holder ” includes any party who acquires all or a part of this Warrant as a registered transferee of Holder, or any record holder or holders of the Warrant Shares issued upon exercise, whether in whole or in part, of the Warrant. The term “ Shares ” means the common stock, par value $0.001 per share, of the Company, and will also include any capital stock of any class of the Company hereafter authorized which will not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution, or winding up of the Company. The term “ Convertible Securities ” means any stock or other securities convertible into, or exchangeable for, Shares.
 
This Warrant is subject to the following provisions, terms and conditions:
 
 
 

 
 
1.   Exercise; Transferability .
 
(a)           The rights represented by this Warrant may be exercised by the Holder hereof, in whole or in part (but not as to a fractional Share), by written notice of exercise (in the form attached hereto) delivered to the Company at the principal office of the Company prior to the expiration of this Warrant and accompanied or preceded by the surrender of this Warrant along with a check in payment of the Warrant Exercise Price for such shares.
 
(b)            Limitations on Exercises
 
  Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable by the Holder hereof to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 4.99% (the “ Maximum Percentage ”) of the Common Stock. To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be exercisable (as among all such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. For the purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Warrant or securities issued pursuant to the Equipment Lease Notes.  By written notice to the Company, any Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder sending such notice and not to any other holder of the Warrants.
 
2.   Exchange and Replacement . Subject to Sections 1 and 7 hereof, this Warrant is exchangeable upon the surrender hereof by the Holder to the Company at its office for new Warrants of like tenor and date representing in the aggregate the right to purchase the number of Warrant Shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of Warrant Shares (not to exceed the aggregate total number purchasable hereunder) as will be designated by the Holder at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction, or mutilation of
 
 
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this Warrant, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant.  This Warrant will be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Company will pay all expenses, taxes (other than stock transfer taxes), and other charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 2 .
 
3.   Issuance of the Warrant Shares .
 
(a)           The Company agrees that the Warrant Shares purchased upon exercise of this Warrant will be and are deemed to be issued to the Holder as of the close of business on the date on which this Warrant will have been surrendered and the payment made for such Warrant Shares as aforesaid. Subject to the provisions of paragraph (b) of this Section 3 , certificates for the Warrant Shares so purchased will be delivered to the Holder within a reasonable time, not exceeding fifteen (15) days after the rights represented by this Warrant will have been so exercised, and, unless this Warrant has expired, a new Warrant representing the right to purchase the number of Warrant Shares, if any, with respect to which this Warrant will not then have been exercised will also be delivered to the Holder within such time.
 
(b)           Notwithstanding the foregoing, however, the Company will not be required to deliver any certificate for Warrant Shares upon exercise of this Warrant except in accordance with registration under or exemptions from the applicable securities registration requirements under the Securities Act or applicable Blue Sky Laws. Nothing herein, however, will obligate the Company to effect registrations under the Securities Act or applicable Blue Sky Laws. The Holder agrees to execute such documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the issuance of the Warrant Shares.
 
4.   Covenants of the Company . The Company covenants and agrees that all Warrant Shares will, upon issuance, be duly authorized and issued, fully paid, non-assessable and free from all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant a sufficient number of Shares to provide for the exercise of the rights represented by this Warrant.
 
5.   Anti-Dilution Adjustments . The provisions of this Warrant are subject to adjustment as provided in this Section 5 .
 
(a)           The Warrant Exercise Price will be adjusted from time to time such that in case the Company will hereafter:
 
(i)           pay any dividends on any class of stock of the Company payable in Shares or Convertible Securities;
 
(ii)           subdivide its then outstanding Shares into a greater number of Shares; or
 
 
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(iii)           combine outstanding Shares by reclassification or otherwise;
 
then, in any such event, the Warrant Exercise Price in effect immediately prior to such event will (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (A) the number of Shares outstanding immediately prior to such event, multiplied by the then existing Warrant Exercise Price, by (B) the total number of Shares outstanding immediately after such event (including in each case the maximum number of Shares issuable in respect of any Convertible Securities), and the resulting quotient will be the adjusted Warrant Exercise Price per share. An adjustment made pursuant to this Section 5 will become effective immediately after the record date in the case of a dividend or distribution and will become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this Section 5 , the Holder of any Warrant thereafter surrendered for exercise will become entitled to receive shares of two or more classes of capital stock and other capital stock of the Company, the Board of Directors (whose determination will be conclusive) will determine the allocation of the adjusted Warrant Exercise Price between or among shares of such classes of capital stock. All calculations under this Section 5(a) will be made to the nearest cent or to the nearest 1/100 of a share, as the case may be. In the event that at any time as a result of an adjustment made pursuant to this Section 5(a) , the holder of any Warrant thereafter surrendered for exercise will become entitled to receive any shares of capital stock of the Company other than Shares, thereafter the Warrant Exercise Price of such other shares so receivable upon exercise of any Warrant will be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Shares contained in this Section 5 .
 
(b)            If and whenever on or after the date of the first funding, the Company issues or sells, or in accordance with this Section 5 is deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the Warrant Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance, the Warrant Exercise Price then in effect shall be reduced based on a “Weighted Average Anti-Dilution basis.  For all purposes of the foregoing (including, without limitation, determining the adjusted Warrant Exercise Price and consideration per share under this Section 5(b) ), the following shall be applicable:
 
New Exercise Price = A * (B + C)
                  (B + D)

For purposes of the foregoing formula:

A= the original Warrant Exercise Price.
B= the number of Common Shares outstanding prior to the transaction.
C= the number of Warrant Shares outstanding prior to the transaction.
D= the number of Common Shares issued or to be issued in the transaction

New Warrant Shares = a * (b)
 (c)

 
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For purposes of the foregoing formula:

a= the original amount of Warrant Shares.
b= the original Warrant Exercise Price.
c= the new Warrant Exercise Price.
 
(c)           Upon each adjustment of the Warrant Exercise Price pursuant to Section 5(a) or (b) , the Holder of each Warrant will thereafter (until another such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in the Warrant Exercise Price in effect prior to such adjustment) by the Warrant Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Warrant Exercise Price.
 
(d)           In case of any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), there will be no adjustment under Section 5(a) above but the Holder of each Warrant then outstanding will have the right thereafter to convert such Warrant into the kind and amount of shares of capital stock and other securities and property which he would have owned or have been entitled to receive immediately after such consolidation, merger, statutory exchange, sale, or conveyance had such Warrant been converted immediately prior to the effective date of such consolidation, merger, statutory exchange, sale, or conveyance and in any such case, if necessary, appropriate adjustment will be made in the application of the provisions set forth in this Section 5 with respect to the rights and interests thereafter of any Holders of the Warrant, to the end that the provisions set forth in this Section 5 will thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock and other securities and property thereafter deliverable on the exercise of the Warrant. The provisions of this Section 5(c) will similarly apply to successive consolidations, mergers, statutory exchanges, sales or conveyances.
 
(e)           Upon any adjustment of the Warrant Exercise Price, then and in each such case, the Company will give written notice thereof, by First-class mail, postage prepaid, addressed to the Holder as shown on the books of the Company, which notice will state the Warrant Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of Shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
 
6.   No Voting Rights .   This Warrant will not entitle the Holder to any voting rights or other rights as a shareholder of the Company.
 
7.   Notice of Transfer of Warrant or Resale of the Warrant Shares .   The Holder, by acceptance hereof, agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so, describing briefly the manner of any proposed transfer. Holder shall also furnish the Company with an
 
 
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opinion of counsel reasonably acceptable to it to the effect that promptly upon receiving such written notice, the Company will present copies thereof to counsel to the original purchaser of this Warrant. The proposed transfer may be effected without registration under the Securities Act or applicable Blue Sky Laws. The prospective transferee or purchaser will also execute such documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the transfer or disposition of the Warrant or Warrant Shares.
 
8.   Fractional Shares .   Fractional shares will not be issued upon the exercise of this Warrant, but in any case where the holder would, except for the provisions of this Section, be entitled under the terms hereof to receive a fractional share, the number of Shares will be rounded up to the nearest whole Share.
 
9.   Governing Law .   This Warrant shall be governed by the laws of the State of Delaware.
 
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer and this Warrant to be dated ____________, 2013.
 
U-VEND INTERNATIONAL, INC.
 
 
By: _______________________________
Name: _____________________________
Title: ______________________________

 

 
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SUBSCRIPTION FORM
(To be signed upon exercise of Warrant)
 
The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ____________ _________________ of the shares of Common Stock of U-Vend International, Inc. to which such Warrant relates and herewith makes payment of $__________________ therefore in cash or by certified check and requests that the certificate for such shares be issued in the name of, and be delivered to, ______________________, the address for which is set forth below the signature of the undersigned.
 
Dated: __________________
 
____________________________________
(Signature)
 
____________________________________
(Name)
 
____________________________________
(Address)
 
____________________________________
Social Security or Tax Ident. No.
 
 
 
 
 

 

ASSIGNMENT FORM
(To be signed upon authorized transfer of Warrant)
 
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto ______________________________ the right to purchase ____________ shares of Common Stock of U-Vend International, Inc. to which the within Warrant relates and appoints ___________________ attorney, to transfer said right on the books of ________________ with full power of substitution in the premises.
 
Dated: __________________
 
 
____________________________________
(Signature)
 
____________________________________
(Name)
 
____________________________________
(Address)
 
____________________________________
Social Security or Tax Ident. No.
 
 
 



Exhibit 31.1

CERTIFICATION

I, Raymond Meyers, certify that:

1.       I have reviewed this annual report on Form 10-K of Internet Media Services, Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.       I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting  (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f), for the registrant and I have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.       I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the registrant’s audit committee of the board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: April 15, 2014

/s/Raymond Meyers
Raymond Meyers
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)
 
 



Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Internet Media Services, Inc. (the “Company ”) on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report” ), I, Raymond Meyers, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) of the Company certify, pursuant to 18 U.S.C. section1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 15, 2014

/s/Raymond Meyers
Raymond Meyers
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)


A signed original of this written statement required by Section 906 has been provided to Internet Media Services, Inc. and will be retained by Internet Media Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.